Short Sales Can Be Big Challenges
Listing agents with tall experience in "short sales" are finding themselves once again in high demand by sellers. Agents who take the trouble to study short sale strategy will be rewarded not only monetarily but, just as importantly, by the humane satisfaction of helping a distressed family retain its dignity.
Although you may be familiar with the term in stocks, short sale has a different meaning in real estate. Stocks are sold short when an investor sells securities that he does not own in anticipation that the price will plummet so that he can buy the stock back at a lower price to cover the cost of the sale. However, in the mortgage arena, a short sale is an accommodation on the part of the lender in hopes of avoiding or mitigating an impending loss.
The short sale means the lender loses money in the short term. The lender agrees to take a discounted amount to release an existing mortgage. For example, if the initial mortgage was written for $200,000, the lender would waive a portion of the loan, perhaps $25,000, to avoid the long term disadvantages of a foreclosure which could prove even more costly.
The ideal agent for guiding a seller for this job would be a caring individual armed with a sharp sense for business, a dash of persuasive ability and an innate sense of commitment to both the project and the client. That client is available now because the first quarter of 2007 brought many borrowers to the dreaded realization that they can no longer afford to make the payments on their home. The home owners are looking for an alternative to their bankruptcy and foreclosure nightmares.
Higher mortgage payments became unaffordable to many borrowers for home financing when the first batch of adjustable rate contracts were reset at much higher levels. Especially hard hit were those who signed sub-prime contracts, that is, notes with higher-than-usual interest rates because of the applicants' shaky credit or other factors.
Adding to the borrower's problems, the first quarter of 2007 not only finds a slower increase in home prices, but even price declines in many areas. Those who agreed to sign barely affordable contracts now find themselves in decidedly unaffordable ones with accompanying loss of equity. They face a difficult and embarrassing situation.
Should they simply wait for the inevitable foreclosure, bury their heads in the sand and hope for the best while clearly heading into default? No, but one might be surprised at the high number of borrowers who do just that. A large part of the listing agent's job will be the delicate duty of painting a reality picture for the clients.
Current real estate reality: The number of foreclosures climbed 27 percent in the first quarter of 2007 compared with the fourth quarter of 2006 and 35 percent from 2005. The source for this hard fact is RealtyTrac, an online marketer of foreclosure properties as reported by CNNMoney.com. In Florida, filings surged to 45,156, up 55 percent over last year.
Foreclosures are expected to increase nationally as many adjustable rate mortgages written during 2004 and 2005 reach their first-reset marks. So there is plenty of work out there for competent and energetic real estate agents. The time has clearly come for those agents with exceptional abilities who are armed with the knowledge of the working basic principles basics of short sales. These topflight agents have growing opportunities to expedite the sale of multiple properties while protecting the interest of the clients.
According to real estate agent Elizabeth Weintraub, ( Short Sales in Real Estate - How to Handle Real Estate Short Sales ) the first call should be to the lending institution to see if the short sale is possible. The agent should talk to the highest authority at the lending institution and ask the borrower to submit a letter of authorization with permission to disclose personal information. With that permission, the agent and the lender will be free to discuss the situation with interested parties, such as closing agents, lawyers and title companies.
A notarized signature should be added to the letter as well as basic information such as the date, borrower's name, property address and the name of the real estate agent and contact numbers.
A lender should be provided with a hardship letter as a definite must-do before a short sale would be considered. Some time and literary energy should be used in composing the letter. If the future prospects look bleak, the more likely the lender is to do a short sale. The letter must be truthful and should be written with the thought in mind that its mission is the opposite of a request for credit. It is just the reverse- the seller must show inadequate income and an inability to make the mortgage payment. The seller must have no equity and be clearly unable to pay the difference between the sales price and the existing loan or loans.
A real estate agent, usually being neither a CPA nor a lawyer, cannot advise on the legal aspects of the short sale, but can be most helpful as a go-between for the lender and the client. There is no ironclad guarantee that a lender will not, at some later time, pursue the borrower for the deficiency, i.e., the difference in the amount borrowed and the amount paid. So it is crucial for the borrower to obtain the advice of a real estate lawyer and to call a CPA about tax questions. For example, a CPA may say that if there is no payback of the deficiency, the IRS may consider the loan-forgiveness amount as income.
The seller would receive no money from the sale so the agent may negotiate the commission from the lender, who is the paying entity. Bear in mind the lender is losing money and will probably deal directly with the listing broker, who will then share the commission with the agent.
Handling short sales for clients will require many phones calls, many give-and-take sessions with lenders and other interested parties. Follow-ups must be made in a timely manner so the transactions can be closed on time.
For the clients, the closing will represent a new beginning.