Information about Short Sales

What is a Short Sale?
How to do Short Sale.
Buying Short Sales.

What is a Short Sale?

"Short Sale" has long been a common term in the field of stocks and investments. Recently though, it has also become a
a well known phrase in the world of Real Estate as well. Quite simply, a short sale is a sale that has been authorized by
the lender to be less than the amount that is owed on a property.

Why Short Sales?

Why would a home owner need to resort to such drastic measures? A troubled economy can cause loss of income as well as a
drop in home values. A homeowner may also have other hardships. Serious health problems or recent divorce can create a financial
burden that is difficult to crawl out from under. When these things happen, a homeowner may have little choice when it is impossible to
make the house payment and the bank wants to know why.

Why would a lender accept a short sale when it will mean a certain financial loss? While there will be some loss financially, it may
be far less than the loss involved if the lender was to pursue other courses of action. The lender has the following option:

*Foreclosure--There are costs involved when a lender decides to foreclose on a property. Not only will they incur attorney's fees,
eviction fees and the possible fees of repairs to the home, but there is also the possibility of a greater loss when a home sells
at auction for far below its market value.

*Loan Restructure--This may be a great option if the lender is willing to add missed payments to the end of the loan, or if they
can reduce the interest rate. However, if the homeowner is in dire straights, this may not be enough to help.

*Deed-in-Lieu-of-Foreclosure--This involves signing the house over to the bank. Now the bank has become a real estate broker with the burden
of marketing and selling the home. Most lenders do not want this responsibility.

*Short Sale--The lender recoups most of what they have loaned for a much smaller loss than other options offer.

Benefits of a Short Sale

The benefit of a short sale to the lender is that it saves them excessive financial losses. They will not need to deal with the additional fees
involved in foreclosure. Nor will they need to be bothered with refurbishing, marketing and selling a home. They will be assured of getting at
least the market value of the home instead of the risk of an auction that typically sells homes at far less than market value.

There are also benefits to the seller of the home as well as to the surrounding community. Consider that the seller will not have the blemish of a
foreclosure on their credit report. In addition, a lender often will forgive the outstanding balance on the loan which allows the seller to move on
financially. Occasionally, however, the lender may still seek a judgment for the balance owed.

The community also benefits from the short sale because a home that sells at market value protects the market value of their own homes. A home sold at
auction for far less than current market value will cause the values of surrounding homes to decrease as well.

An experienced agent can assist sellers with a short sale of their home as well as assisting buyers in the purchase of short sale properties. Using a
professional to assist you will assure that no details are missed and things will proceed relatively quickly and smoothly.

Back to Top

How to Do a Short Sale on a Home

If loss of a job, health problems or other hardships have made it impossible for you to continue making payments on your home,
you may consider doing a short sale to avoid bankruptcy, foreclosure or both. A short sale occurs when the loans outstanding
against a property are more than what the home can be sold for. To do a short sale, it is recommended that you enlist the
expertise of a professional Real Estate agent who is experienced in this area.

How to Do It

1. Verify the value of your home--A competent Real Estate agent can determine the value of your home and tell you how much
you can expect to sell it for.

2. Put together a Preliminary Net Sheet--This is accomplished by totaling the amounts owed against the property including:

*Loan balance

*Outstanding payments

*Late fees

*Real Estate commissions

*Title and escrow fees

*Attorney's fees

*Unpaid property taxes

*Notary fees

*Other fees associated with selling a property

Next, subtract all amounts owed against the property from the estimated sale amount that you will get for the home. This will be a negative
number, if it is not, you will not be able to do a short sale.

3. Contact your lender to discuss their procedures for doing a short sale. Some lenders may forgive the outstanding balance after the
sale; others may still hold you responsible for the balance owed.

4. Submit to your lender a Letter of Authorization giving them permission to discuss your situation with your Real Estate agent or others
that may be involved. Include the following in your letter:

*The address of the property

*Your loan reference or account number

*Your name

*The date

*Your agents name

*Your agent's contact information

5. Submit to your lender a Hardship Letter. It is important to be honest while still creating a clear picture of your dire financial
situation. If you lost your job due to a permanent injury or a layoff, include the details of this in you letter. The purpose here
is to persuade the lender that you have no other options and it would be in their best interests to accept less than the full amount
owed on the property in question.

Your Real Estate agent can provide you with a Comparative Market Analysis to show the lender if a decline in the real estate market
is a contributing factor in your inability to sell your home for the loan amount owed.

6. Provide you lender with proof of your income an assets. Also include copies of your bank statements. Be prepared to explain any
deposits or withdrawals that appear unusual to the lender.

7. Send your lender a copy of the purchase agreement between you and the potential buyer of your property. Be aware that the lender
is likely to re-negotiate some of the terms of this agreement to protect their best interests. A lender will not pay for things
typically paid by a seller like home inspections.

Follow the advice of your Real Estate agent to successfully negotiate the terms of a short sale. Also, be sure to consult your
accountant. The IRS will treat your debt relief as taxable income. There may be options available to you, such as the
insolvency exemption or others. Your agent cannot give tax advice; however, he or she may have some helpful suggestions.

Back to Top

Buying a Short Sale

There are many programs today that promise riches though the buying of short sale properties. While it is often possible
to profit from the buying and selling of short sales, it is not as easy as these programs claim. This is because short
sale properties are priced according to the current market value of the home. It is not always easy to get homes at deep
discounts as is often possible when buying properties at auction. However, if the market is expected to improve and you can make
inexpensive improvements on the home, you may still be able to turn a profit.

Experience Pays

The services of a Real Estate agent who has experience dealing with short sales are an indispensable tool that you should take
advantage of. A professional agent will know all the details of successfully purchasing short sale properties. You will receive
valuable advice to protect your interests during negotiations of your purchase.

A professional Real Estate agent can also find information that you will need before making an offer on the property that interests
you. Information that you need includes:

*Who currently is in title of the property

*How much is owed on the property

*If the property is currently in foreclosure

Knowing these things will give you a clearer idea of how much you should offer the seller. However, even if the seller accepts
your offer, the lender may still refuse it. This is another area where having professional assistance will pay off for you.

Lender Requirements

It can take much longer than anticipated for the lender to accept, reject or counter your offer. To save time it is a good idea
to provide the lender with as much information as possible the first time. This will assure that the lender has all the information
that he needs to consider your offer. Some things to include are:

*A copy of the purchase offer

*A copy of your earnest money deposit

*Your loan pre-approval information

*A list of comparable sales in the area, obtained from your Real Estate agent

Realize that the lender is unlikely to pay for things that a seller typically pays for. For example, termite inspections will need to be paid for by you, the buyer.
In addition, they may require that you increase your earnest money deposit. Commissions also will typically be negotiated by the lender because they are losing money in a
short sale transaction.

Don't think you will save money by skipping inspections! Inspections are imperative and will save you many headaches down the road. This is one place where being
thrifty is not a good idea. Make your offer contingent on your approval of the results of the inspections as well as on acceptance of your offer by the lender.

It can be a smart economic move to purchase your home or investment property through a short sale. Follow the advice of your Real Estate agent who is trained to
handle these transactions and has enough experience to prevent possible problems. This will assure that your short sale purchase is the best possible experience for you.

Back to Top

McKinney Homes Real Estate Agent

Real Estate Websites