SHORT SALES Are Dramatically Impacting East Bay Real Estate!
August 23, 2008 by Jim Walberg · 2 Comments
The value of borrowers homes may not be enough to pay off their loans. Short Sales are now impacting appraisals of properties and the ability of borrowers to secure their next mortgage.
Not since the early 1990s have I seen so many Short Sales being processed. The challenge 
today is that most Realtors servicing a Short Sale were not in business in the early 1990s. In fact, most of the people working for the lender’s side of the Short Sale negotiations have never participated in this type of transaction. This may be one of the reasons why less than 30% of the Short Sales actually close escrow. We now have the solution for borrowers considering this method of negotiating with their lenders. Our real estate Team is looked upon as one of the most successful in actually completing the Short Sale process because of having a dedicated department to serve these difficult situations. Ellen Muzzio has just joined our Team as our Short Sale Specialist. She is the most experienced professional we have found regarding the successful management of a Short Sale.
A ‘short sale’ is when a lender accepts a discount on a mortgage to avoid a possible foreclosure or bankruptcy. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $700,000. The value of the home in today’s real estate market is only $600,000. The borrower hires a Realtor to sell it for current market value. A Buyer presents an offer for $600,000. The purchase offer is submitted to the lender for consideration. This is a ‘Short Sale’.
Deciding to participate in the Short Sale process is a BIG decision for a Buyer. It is usually triggered when someone is at the point of not being able to afford their home due to; high interest rates, dips in property values, divorce, loss of employment, decrease of income, etc., then they are forced to make a life altering decision. I will be the first to tell that a short sale is bad, but a foreclosure is worse. However, the Buyer may have the ability to save their credit from reflecting a ‘foreclosure’ as to simply having a ‘settled debt’.
Why would a lender today be willing to take such a loss? Here are just a few of the reason: First, banks do not like excess inventory and delinquent loans on their books. An opportunity to sell the property is very attractive in today’s real estate market. Secondly, lenders know they could lose a substantial amount more if the property goes to foreclosure – a trust deed sale. There are many fees involved: i.e., property taxes, liens, repairs, etc. The lender may be better off taking the loss beforehand and be finished with the headache and liability if in fact it goes to
a ‘trust deed sale’.
The short sale negotiation with the lender is a difficult, frustrating and very time consuming. A purchase contract from a Buyer is required to begin discussions with the lender. This is the first step of many that will need to be successful taken in order of a lender approval to be secured. A short sale approval is further complicated when there is a 1st and 2nd mortgage on the property. Here is a list of the items a lender will require before they will even begin the negotiations.
- A letter of hardship from the borrower.
- A copy of the purchase contract from a prospective Buyer of the property.
- Two years tax returns. (If you have not filed, include that information in hardship letter)
- Two most recent paycheck stubs for each person on loan.
- Two most recent bank statements from the borrower(s).
- A copy of your mortgage statement(s).
- A signed borrowers authorization for our Short Sale Specialist – Ellen Muzzio, to communicate directly with the lender(s).
The outcome of a Short Sale will be up to the skill of the professionals managing the case on behalf of the borrower(s). Again, it is not for the faint of heart, but it may be the best solution for a borrower in a very bad situation. There are very important tax considerations for a borrower to also consider. Before they even begin the process they will need to seek counsel from their tax and legal advisors. Let me know if you would like to learn more about how this may benefit your current real estate situation. Until next time…
Related posts:
- East Bay Real Estate “Short Sales”…The Rest Of Jim Walberg’s Story!
- East Bay Real Estate: 2010 Update – Short Sales Replacing REO’s!
- Some Bank’s Short Sale Polices Seem To Be Falling Short In The East Bay!
Filed Under: Blog, Buyers, News, Real Estate, Sellers
Tagged: east bay real estate, Jim Walberg, real estate short sales, short sale specialist, short sales
Short sales are the hottest thing in real estate investing today. Not only is there a huge potential for profit, but you are helping people avoid bad financial situations as well. Thanks for the excellent information for those considering this option.
Jon Christopher of Short Sale Way
Hey Jonathan,
Yes, there are huge potential upsides for Buyers of Short Sales. And it can be of great benefit to Sellers and even to lenders. AND, it takes a skilled professional to manage through the process for a successful result. We look forward to the day when short sales become a thing of the past as they finally did in the down turn of the early 1990s. Until next time.
Jim