Short Sale Buyer’s Guide

Short Sale Buyer’s Guide

“As we head into the winter of 2013-14, I believe that short sales are an especially good opportunity to buy at below market, if you can find short sales to buy.”  - Mike

Definition:

A short sale occurs when the total net proceeds from the sale are insufficient to pay all the debt secured by that property. (most commonly, the mortgages) Example, The home has a mortgage of $650,000, but in today’s market the highest offer the sellers gets is $550,000. The bank agrees to be paid back “short” and lets the sale go through.

Drawbacks for buyers:

You have to wait…and wait…and then wait some more. Don’t make an offer on a short sale unless you are prepared to wait 6 months or more before you own the property.

At the end of the wait, the price can change. Since the bank is not being paid in full, they have to approve the price and other terms of the sale. You don’t really know for sure what you are paying till you have the approval letter in your hand. However, if the bank changes the price, you can walk away or counter offer. There is no penalty to you.

Benefits for buyers:

Sometimes you can get a ridiculously good deal. The banks can be very inconsistent in their valuations, both high and low.  If they come back high, you can always walk away.   If they agree with your price, you say, “Thank you very much,” and put that money in your pocket.

The wait period works for you in an appreciating market. While the bank spends months processing the short sale, you have the property tied up with no risk and no "skin in the game." You can often get the property at last year's prices. 

There is also typically less competition for short sales and you may find yourself in the running for properties that would be out of your reach as a “normal sale.”

How to proceed

Use an experienced short sale agent. You need a savvy agent in your corner.  I have been involved with roughly 40 short sales over the last 6 years, usually on the seller side.  Believe me, they are definitely more complicated.

Offer strategy is important. Your agent must communicate to sellers’ agent that you are flexible and on their side. Sellers and their agents are under extreme pressure, dealing with a complicated, sometimes random, bureaucratic process with foreclosure staring them in the face. As long as you are getting a good deal, let them know you will do everything you can to make their job easier. 

Are you following me here? Price is not the seller’s primary concern. They just want an offer the bank will approve so they can get on with their life. The sellers get nothing, regardless of the price. 

If you need to pay for a month or 2 back HOA dues or a short sale negotiation fee or any other random item the short sale bank won’t approve, let the seller’s agent know you are open to that, as long as your bottom line still works for you. Again, you need an experienced agent to figure out the lowest price the bank is likely to accept. Low purchase price is where you make your money.

What to expect

60 to 90 days after your offer is submitted you will usually have an answer in the form of the approval letter which spells out the terms of the sale. Wait time is over and hurry up mode begins.  Most often they want you to close the deal in 30 days or less. At this point it becomes more like a regular sale. You usually have 17 days to do your inspections and get your loan approved. During this initial 17 days, after the approval letter is issued, you can back out with no penalty. Most short sales are approved at the offer price, but you never know till you get that approval letter.

Happy hunting! Do not hesitate to contact me if you have any questions.

Mike Young - Thunderbird Real Estate
Realtor, Broker Associate, MBA, SFR, CDPE, HAFA
(831) 234-1545
License 00952966
mike@MikeYoungProperties.com

The Underwater Homeowner's Dilemma:

Should I Stay or Should I go?

One out of three homes in California is worth less than the mortgage. We face tough decisions as we come to grips with the worst recession since the 1930s and the housing market at the center of it. Even though foreclosures destroy credit scores many borrowers are considering walking away from their homes. (A short sale may help, see below) It’s a difficult decision. It’s an upside down world. Confusion, anger and denial prevent many from moving forward.

The blame game doesn’t help the situation. Mortgage lenders, the government and borrowers all bear some responsibility. But that is old news. This article is about being proactive. We need to let go of the past, get our eyes off the rear view mirror and on the road ahead.

If you are struggling to make your mortgage payments, watching your reserves dwindle, maybe even borrowing from family or using credit cards to stay current, you need a plan right now.

There are lots of headlines about loan modifications, but unfortunately they only work for a small percentage of homeowners. Even if you are one of the few who qualify, it may not help. 42% of loan modifications offer less than a 10% payment reduction. Only 10% offer any principal reduction. The exception may be Wachovia. (Contact me for more information on Wachovia)

If your mortgage is more than 125% of the value of your home it is in your best interest to investigate a short sale now. (A short sale means selling for less than what is owed on the mortgage.) If you hang on to the house, you hang on to the debt. It will take you 5 to 10 years of paying that over value debt to get back to zero equity. It makes much more financial sense to push the reset button. Sell short now, rent a home and buy again in two years. You reduce your housing costs immediately. You get rid of the crushing debt. You may be able to buy again in two years. Prices will still be relatively low.

Over the past 2 ½ years I have guided many sellers through successful short sales. I won’t lie. It is a pain. It may take 6 months or more to complete the process, but if you can’t afford to stay it is definitely the way to go. There is a much softer hit to your credit score vs. the whammy of foreclosure, consult tax and legal advisors to verify. You avoid the publicity of your home being sold on the court house steps. You have more control of the timing, allowing a more graceful exit. In some cases, the bank will give you moving expenses. The bottom line is you move forward.

Here’s the plan:

1. Consult expert legal and tax advisors. (Contact me for references)

2. Call me to find out how much your home is worth today.

3. If you owe less than 125% of your homes market value, if you want to stay in the home and if you have income to support a mortgage payment that is 80% of what you pay now, pursue a loan modification with your lender.

4. If you owe more than 125% of your home’s value, have income loss, been denied a loan mod, loan mod isn’t helping enough, job loss, divorce, or medical bills it may be time to consider a short sale. Call me to discuss your personal situation.

5. Avoid foreclosure at all costs!

Caution! Short sales are not for everyone. Seek legal and tax advice before proceeding with any options discussed above.

Next weeks topic: "Anatomy of a Short Sale"

Mike Young is a Realtor, MBA and Broker Associate at Thunderbird Real Estate in Capitola, specializing in listing and selling distressed properties in Santa Cruz and Monterey Counties. For questions or more information go to www.mikeyoungproperties.com or contact Mike directly at (831) 234-1545 or mike@mikeyoungproperties.com