Short Sales 101 – Part 2
Short Sales 101, Part 2
A short sale property is one that is on the market with an asking price that is less than the seller owes on the property.
Not many banks are known for their philanthropic pursuits, they are in business to make money. Debt forgiveness is not high on their priority list. So getting them to accept a short pay on a mortgage loan is not an easy task.
However, the housing market has changed over the past year. Remarkably, distressed homeowners with a legitimate hardship are finding it slightly easier to obtain a short sale approval. As with most things, if the distressed homeowner prepares properly they increase their chances of success.
For the purposes of simplifying this discussion, we will use the term bank when we refer to the lender and/or servicer. In fact, most loans are sold on the secondary market and the organization that actually owns the note (title to the property) may be your insurance company, union retirement fund or any number of investment entities commonly known as the investor.
Usually, the organization to which you make your loan payment is a loan servicer that works for the investor. That loan servicer may or may not have the decision-making power to accept or reject a short sale request. However, distressed homeowners must present their short sale requests to the servicer in the form that servicer requires.
One of the first things that the bank will look at is the seller’s financial hardship. That hardship must be one that meets the banks guidelines. The distressed homeowner must include a hardship letter, explaining why they can no longer make their monthly payments, accompanied by supporting documentation. The bank will verify every detail. Some homeowners try to beat the system by omitting income streams and assets from their financial picture in the short sale request package. That is fraud and can result in severe penalties.
A partial list of hardships that are usually accepted include:
Business Failure Job Loss
Damage to the property Mandatory Job Relocation
Death in the Family Medical Bills
Divorce Military Service
Insurance or Tax Increase Military Service
Incarceration Severe Illness
Increase in Mortgage Payment Too Much Debt
The second thing the bank will consider is if there is insolvency. If the distressed homeowner has liquid assets that can be used to pay down or pay off the debt, that homeowner does not meet the insolvency test. (Federal Law excludes 401K retirement account balances from this calculation).
The third requirement that distressed homeowners must demonstrate in order to obtain short sale approval is a monthly income shortfall. A simple list of monthly income less a list of monthly expenses will provide the proof needed for this test. Remember to list only minimum monthly payments when making this calculation.
Once again, the bank will review every document provided and check each for authenticity. Borrowers with a verified, acceptable hardship will receive serious consideration for their short sale request.
For those seriously considering a short sale, we recommend that you enlist the professional services of a qualified Realtor®, certified to handle short sales. The process is time consuming and requires a highly detailed approach if one is to achieve shot sale approval. Not all licensed real estate agents have the skills, interest or patience to meet your goal.
Call us at (916) 337-0658 if you have any questions or wish to consider short selling your house.
Stay tuned for more on short sales.
Short Sales 101 – Part 1
Short Sales 101, Part 1
What is a short sale? A short sale is transaction in which the seller is attempting to sell their property for less than they owe the lien holder or lien holders. In almost all cases something has happened that prevents the homeowner from being able to continue to make their mortgage payments.
The difficult part of this process is getting the lien holder or lien holders to accept the short pay. Short sale properties are available everywhere and offer the potential of being a GREAT BUY. However, they usually take a long time to complete and, because many lien holders can not or will not accept a short pay, many attempts at a short sales fail. Also, many buyers give up in frustration and move on to another property because they get tired of waiting for lien holder’s approval.
Do I qualify for a Short Sale? Qualifications for a short sale include any or all of the following:
- Financial Hardship – an acceptable reason (as determined by the lien holder) causing the homeowner to have trouble affording their mortgage payment. Some acceptable reasons include; death in the family, serious injury impacting a wage earner’s income, loss of job, major reduction in income… to name just a few.
- Monthly Income Shortfall – You have more month than money.
- Insolvency
In all cased the homeowner must document the reason they can not make their payments. Tax returns, pay checks, bank statements, investment account statements, documentation from employers are part of the paperwork required.
The fact that the value of your home has declined and your mortgage payment is too high given the current market value is not an acceptable reason.
More on Short sales will be posted soon.
Call (916) 337-0658 if you want to discuss your particular situation. Each one is different.
BANK OWNED(REO) HOME SALES DATA FOR FOLSOM, CA–SEPT. 2011
BANK OWNED (REO) HOME SALES DATA FOR EL DORADO HILLS, CA – SEPTEMBER 2011
This is the latest monthly report of a nearly four-year study of bank owned home sales in El Dorado Hills, CA. This report covers September 2011.
There were 15 REO homes sold in El Dorado Hills in September, three more than sold the previous month.
The average days on market dropped from 36 in August to 36 in September. Only one of the homes had been on the market for over 100 days. A full 60% of the homes that sold were on the market for two weeks or less. Well-priced homes in good condition are still selling quickly.
The 15 Bank Owned homes that sold represent only 26% of ALL homes sold in El Dorado Hills this month.
The available inventory of bank owned homes in El Dorado Hills increased from a 1.5-month supply the previous month to a 1.6-month supply in September. That inventory level has not been over a 2-month supply any month this year, with the exception of February, when it was at a 2.7-month supply. The available inventory for ALL homes increased from a 3.5-month supply the previous month to a 4.2-month supply in September. Pundits advise that a 6-month supply is a neutral market, so we are still looking at a seller’s market for ALL homes in El Dorado Hills.
The average cost-per-square-foot for Bank Owned homes was $ 136 in September, up from $ 133 the previous month. The average cost-per-square-foot for ALL homes sold in El Dorado Hills in September increased to $ 152, up from $ 148 the previous month.
The overall sales price for REO homes was 101.1% of the final asking price and 98.6% of the original asking price. Yet 60% of the buyers paid the full asking price or more for their REO homes in September. Apparently, these homes were well priced and buyers decided to take advantage of low prices and excellent mortgage interest rates.
REO buyers paid 90% of the cost-per-square-foot for their REO home when compared with the cost-per-square-foot for ALL homes sold in September. That is a $ 16 pre-square-foot savings. When applied to a 2500 square foot home that represents a savings of $ 40,000, a considerable sum. Most buyers would consider that sufficient reason to accept the fact that REO buyers must relinquish some of the rights they have when buying a home in a normal sale.
If you have any questions about purchasing any home in El Dorado Hills, an El Dorado Hills Bank Owned Home, or a Bank Owned Home anywhere in the area, feel free to give us a call (916) 337-0658.
The data follows:
BANKS APPROVING MORE SHORT SALES!
BANKS APPROVING MORE SHORT SALES!
A short sale is a borrower/owner’s attempt to sell their home for less than they owe to their lender(s). Once they get an offer, they submit it to the lender(s), asking for approval. In California, if approval is given, the lender forgives the borrower for their debt commitment.
For example, a borrower/owner purchased a home for $300,000 several years ago, taking out a loan for $270,000 to complete the purchase. If, and only if, he has a financial hardship that the lender(s) will accept, he can put his home on the market for the current market value, say $ 150,000. Once he receives an offer for the $ 150,000, he will submit it to his lender(s) for approval. If the lender(s) approve the short sale, the borrower/owner is of the hook for the unpaid balance of the $ 270,000 loan.
Additionally, the impact of an approved short sale on that borrower’s credit is far less damaging than a foreclosure would be. Borrowers who go through an approved short sale can usually qualify for a loan to buy another property in two years. Therefore, a short sale is a better option than most others are for borrowers who are having trouble making their mortgage payments. Of course, their financial hardship is the key.
Short sales have been a major segment of housing market activity for several years. In the early stages of the recent down turn, lenders were reluctant to approve many short sale requests. Lenders were not prepared for the volume of requests and were quickly buried with paperwork. They have been adding staff and implementing procedures to handle the volume, but not quickly enough.
Lenders are well aware of the fact that approving short sales for borrowers with legitimate hardships is far less costly to the lender than going through a foreclosure. As they get their house in order, we were bound to see an increase in short sale approvals.
We are pleased to report that all indications are that lenders are turning the corner and now approving more short sales. Select this link and read the entire Bloomberg article:
If you, or someone you know, are having difficulty making your mortgage payments and need assistance, feel free to contact us. There is no charge to the distressed homeowner for our services. We are short sale specialists.
THIS MONTH IN REAL ESTATE – JUNE 2011
This month in Real Estate – June 2011
This is a monthly video which covers various aspects of the real estate purchase. This month home repairs and home inspoections are the main subject.