Do NOT Give Your House Back Or Walk Away – Short Sale Survival Guide!
Do NOT walk away from an upside down house until you read this.
Short sale approval requires skill, experience, TEAMWORK and a bunch of luck.
Short sales, as you undoubtedly know, are not “short” (in terms of time) or easy. In fact, short sales are VERY unpredictable, with every borrower’s unique situation scrutinized by the bank (or banks) involved.
SKILL – the real estate agent you choose to help you avoid foreclosure MUST be skilled in listing & marketing short sales. He/she also must understand the entire short sale process, preferably experienced in negotiating short sales as well.
Why does this matter?
Invariably, challenges will arise during negotiations – they always do! Even if your experienced & skilled real estate agent knows how to list & sell short sales, he/she usually is not the person/company directly negotiating your short sale with the bank(s).
I used to.
After involved in 100+ short sale negotiations, I came to my senses, realizing I could not efficiently wear all hats in my customers’ best interests. Therefore, I have attmpted to find the most effective, affordable short sale negotiating services available.
However, let me be clear – finding affordable, effective short sale negotiating services is MUCH easier said than done!
NOTE: What I have discovered is that many title companies have converted title agents to “short sale negotiators,” piling on the files and offering free short sale negotiating services to help their struggling title business. In my experience, title companies have been horrible short sale negotiators. If your real estate agent recommends a title company (as she/he proclaims you won’t have to pay a penny for negotiating services, please be forewarned that title companies (in my experience) have been horrible short sale negotiators.
Once your real estate presents you with (and you accept) a “good” offer to purchase from a “strong” buyer, it’s time to update all the documentation your experienced real estate agent discussed during the listing presentation months earlier. For instance, you will need to provide (your) short sale negotator with the following documentation:
1) Hardship letter – handwritten;
2) Recent payment statement (aka “coupon”) for each loan;
3) Financial statement – “in/out financial statement”;
4) 2 most recent bank statements – all pages;
5) 2 most recent tax returns – 1st 2 pages of 1040 unless bank demands all pages of each year’s tax return;
6) 2 months’ pay stubs for each borrower;
7) IRS Form 4506T
Once your short sale negotiator packages all your paperwork (#3s 1-7) and your real estate agent’s required paperwork, your negotiator submits the “short sale package” to each bank claiming to have a mortgage lien on your property.
The short sale process begins.
The bank to whom you owe the most is called the 1st lien holder. If you have a 2nd or even a 3rd bank, each is called a junior or subordinate lien holder. For you to walk away, all lien holders must agree in writing to to sell the house according to the terms of the purchase and sale contract.
Bank #1 must agree to take the buyer’s offer to purchase.
Bank #1 must agree to pay all the closing costs.
Bank #2 (and possibly #3) must agree to take a heavily discounted payoff from bank #1 in exchange for written approval.
To be clear, all banks (lien holders) must agree to sell according to terms of the contract. Bank #1 (whom you owe the most) cannot demand bank #2 sell (or accept a certain payoff).
Further unpredictable is that it’s not enough today for any borrower to prove financial hardship to the bank. I’ve worked with sellers (borrowers) who proved financial hardship. However, bank refused to let walk away without an unrealistic deficiency demand. How is a borrower supposed to pay anything, if she/he/they don’t have the money?
Today, your short sale negotiator actually can submit all paperwork to the bank, only to discover another bank (i.e. bank #2 for instance) dragging its feet until the buyer your real estate agent worked hard to procure walks away in frustration.
Yes, this happens frequently.
Now, it’s time to separate the BS from real-world short sale success. Straight up, you need to understand a short sale approval requires you to suffer documented financial hardship. Your hardship letter calls out clearly your hardship and your financials support your hardship claim. If the bank thinks you can pay now or even later, chances are (one of the banks) servicing or owning the mortgage debt will require you to take a promissory note or pay the deficiency in part or full at closing.
This is reality. This is why I encourage you to get informed (first) and execute your plan (second) – you MUST work with experienced, skilled people. You cannot fall for smooth-talking people who have read a bunch of books but whose real world experience is non-existent.
You absolutely need to work with proven, experienced short sale specialists including your realtor, your attorney & your tax professional.
A real agent is not a tax professional or real estate attorney…and vice versa.
Once you have your property listed as a short sale, you safely can and should begin rounding up all required paperwork.
Buckle down for the long haul as banks appear to be taking longer rather than shorter to process short sale approvals. It’s taking many months to get approvals. Don’t freak out.
Ask lots of questions. With hope, you have selected a team that will earn your trust with results.
Sarasota real estate agent Mike Payne and his team help homeowners avoid foreclosure in Sarasota & Bradenton (FL) areas. Too many Sarasota foreclosures occur when property owners walk away, believing the problem ends when they walk away, give the keys back or short sell (the wrong way).