Short sales, where the lender agrees to take less than the amount due to them, have tended to sell for less than similar homes in the area. One reason for this is that short-sale listings usually don’t look as good as the competition. Another reason is that short sales require lender approval.
Last year, lenders often took three to six months to respond to a short-sale offer. If the response was no, the buyer was out looking for another home after having wasted a lot of time. Many buyers who expected short sales to be good deals shied away from them altogether after having a few bad experiences.
Subsequently, the Obama administration put pressure on lenders to do more short sales and fewer foreclosures. Now a process that was laborious is much easier to navigate.
Before you put your house on the market, contact your lender or lenders to let them know you can no longer afford to keep the house and you will be selling it. Also tell your lender that due to the decline in property values in your area, you may not be able to sell for enough to pay off the mortgage.
HOUSE HUNTING TIP: Lenders usually won’t work on a short sale until there is an accepted offer on the property. But doing a little ground work with your lender(s) can assist the process. Find out how long it will take them to process a short sale. This kind of information will be important to a prospective buyer. If buyers know they can expect a response from the lender in 30 to 45 days and not four to six months, they’ll be more inclined to make an offer.
Try to work out a loan modification with your lender before you put your house on the market. If your lender agrees to lower the loan amount, your listing will be more attractive to buyers because the lender won’t have to take as large a shortfall in order to approve the sale.
Most lenders won’t allow credits from seller to buyer in a short-sale transaction. It’s a good idea to have presale inspections done before you put your house on the market. The more information a buyer has about the property before an offer is made the better the chance that you won’t end up in a situation where the buyer discovers defects that weren’t previously disclosed and wants credits as compensation.
In most cases, it’s worthwhile to make your house look as good as possible before putting it on the market. This will bring you a higher price, which reduces the amount your short. This will make it easier for the lender to approve the sale.
You’ll need broad marketing exposure to attract a wide range of buyers. It’s important to hire an agent who is willing to put the time and effort in marketing your property and dealing with your lenders. Your agent should be a good communicator who will keep all the parties involved informed.
It’s important to consult with your attorneys and CPAs to review any documents that the lender requires before closing the transaction. Some lenders will require the seller to pay back the amount they’re short. A seller does not need to agree, but this could cause the transaction to fall apart. You could owe tax on the amount of money the lender forgave, though the Internal Revenue Service does offer tax relief for those who lose their homes through foreclosure or short sales between 2007 and 2012.
It takes a lot of patience with him and perseverance to get through a short-sale transaction. However, a short sale might negatively impact your credit for two to three years; it would be five to seven years if you let the property go to foreclosure.
THE CLOSING: If possible try to negotiate with the lender to salvage your good credit.
Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”