Real Estate Investing

I may be jaded, but I’m not convinced that short sales are as easy as outlined by Christina Inman over at Real Estate Dispatch in her piece called Real Estate Agents Can Process Short Sales in Seven Easy Steps.

But, I’m not sure agents realize just how simple this process–which can net them some serious profits and help them build some great contacts for the future (remember that homeowners could qualify for another mortgage at a reasonable interest rate in as little as 18 months if their short sale is completed successfully–which means they’ll probably be needing an agent to find them another home in as little as a year-and-a-half…).

Yes, the steps she outlines are sensible and smart.  BUT I agree with one commenter who said “Im afraid its not quite that easy. Short sales have many more pitfalls.”  There are so many stumbling blocks to getting a short sale through - first and foremost is getting the bank to allow it.  Yes you can document and support your comparables, photos, etc. but given the huge stack of short sale applications and foreclosures in front of yours, TIMING is the next biggest issue.

I tell my clients that if you want to buy a short-sale, be prepared for it to take anywhere from two months to a year.  Because that’s the reality.  Short sales used to be fairly straightforward - prove there is a need, prove that the loan is bigger than the home is worth, prove that financially you are unable to make your payments.  Even then, though, it was hard to talk to a real person.  And to CONSISTENTLY talk to the same person - impossible.

It is not insurmountable to get a short-sale, however . Just know that patience will be your friend in the long run.

The attorney at my officer earlier this week was an absolute font of short sale knowledge, though often he said he didn’t know.  Short sales really are the wild west… every one is different.  Every seller has a different situation, every lender will address a short sale differently.

What does this mean to you?  It means that the agent who has the listing may not be qualified to deal with a short sale.  It means if you’re the seller that the buyer may not be qualified to buy a short sale.  But how do you know?

It’s fairly straightforward to know if the buyer is qualified to purchase a short sale with one simple question (beyond the obvious “Can they buy?”):

• Does the buyer really give a hoot about the house?

If the answer is no, then they are qualified because buying a short-sale can be a long, harrowing process that could take months - even a year.  If the buyer has to be moved by X date, then they need to find another house.  Real buyers should be patient, qualified to buy, and patient.

But is the Realtor qualified to sell the house?  Again, some questions asked in advance can let you quickly know if you should waste your time on the short sale experience:

• What is a short sale?  (Captain Obvious strikes again, but you’d be surprised at how many agents really DON’T know)
• How many loans are there against the house?
• Have you submitted a short sale package?
• How is the lender and seller planning to address all the outstanding loans?

If the agent can answer these questions, then clearly they are clued in as to what the process will be like.  That’s an agent who really does have experience and is qualified to handle the transaction.

If you’re in financial trouble and can’t make your mortgage payment, foreclosure may not be your only option.  Before you get to the point of foreclosure, try talking with your lender about the possibility of a short sale.

First, what is a short sale?  It’s when the home is worth less than what is owed through a loan (or loans) so even if you sold it, you’d come up short the payoff.  In certain situations, lenders may be willing to waive that difference. But they won’t gladly discharge the amount … you’ll have to prove you’re deserving.

The attorney that spoke at my office today told about one family who was trying to get qualified for a short-sale.  They had to produce two years of tax returns, bank statements for the past six months, and a personal loss and profit statement - along with the ever-important hardship letter.  The couple was turned down because four months prior, the family had taken a trip to Disney World and spent $4,000.  The lender felt if they could afford a vacation to Disney, then surely they could afford to make a house payment.

So what is hardship?  Read my post from late September to get a fairly long list of what qualifies.

A short sale is not a fast, easy fix.  It’s a long daunting process in which the seller must be patient.  As the speaker said today, “Short Sales are the Wild West.”  I prefer having a sheriff in town, but sometimes you have no choice.  Good luck.