Short Sales

I.  Definition
II.  Short Sales Process
III.  Is It Worth It?
IV.  Do you Qualify for a Short Sale
V.  Creating a Successful Short Sale Package

I.  Definition of a Short Sale: the legal sale of a property where the seller (owner) is coming up short on his/her payoff to the lender and the lender has agreed to accept that amount.  For a list of Short Sales in North Kona and South Kohala, click here.

II. Short Sales Process:  In order to qualify for a short sale, an owner must show to the lender that they can no longer support that loan, that they are "distressed".  In many cases, the owner will wait until they have missed payments before becoming aware of the short sale process and may be at the point of foreclosure.  A lender may begin foreclosure proceedings if the borrower is 90 days or more behind on their loan.

A short sale happens when the owner is falling behind and realizes that their property is worth less than what is owed.  This is common today because so many people refinanced their homes or second homes when the market was high.  An example is a home that was purchased for $262,000 in 2004.  By late 2005, the home was appraised at over $600K and the owner refinanced at that appraised value.

Today, the home is worth $370,000 and the owner is no longer able to keep up his payments, for whatever reason.  He contacted the bank, told them of his plight and they agreed to consider a short sale.  Short sales are typically less expensive than a foreclosure and quicker.  In addition, where there is a second mortgage, the holder of the second is more likely to agree to a short sale since in a foreclosure, they would receive nothing with all proceeds of the sale going to the primary lender.  At least in a short sale, a second lien holder may get 10% to 20% of the amount owed back at the time of sale.

Short sales can be very good deals for buyers.  Typically, the bank will accept what market value is regardless of what is owed.  In the example above, the lender stands to lose nearly $250,000 from what is owed.

III Is It Worth It?  This depends on when you want to own the property.  Most short sales today are taking from 4 to 6 months to close.  There are many reasons for this but it all comes down to the lenders not being prepared for the number of short sales they are faced with.  Consequently, the short sale departments are under staffed and under trained.  Add to that the general confusion in banks today and you get long closing periods.

Most of the time is wasted just waiting for the banks to answer.  In the case above, a true case even though the numbers have been altered, there has been a full price offer sitting at the bank for over two months with no response and no one willing to talk about the current status.

Many buyers just disappear after waiting for 90 days or so.  It can be frustrating when you have no idea of where you are, especially if multiple offers have been submitted. 

If you're considering a short sale property, be sure to work with some one knowledgeable with short sales, some one who's done a couple and understands the process.  We have been handling short sales for both buyers and sellers for over a year.  Knowing what to expect is key to avoiding the high frustration levels normally associated with these sales.

Contact us at Service@FerrariPacificRealty.com and we'll walk you through it.  Also, you can go to our list of Short Sale properties to see what's out there, if you're the patient type.

IV. Do you Qualify for a Short Sale?  Not everyone who's in financial trouble will qualify for a short sale approval from their lender.  General requirements to qualify for a short sale are, you're two to three months behind on your mortgage payments.  You are experiencing a financial hardship (job loss, income reduction, etc.) that will prevent you from making future payments.  You have contacted your lender's Loan Mitigation Department to explore other options to no avail.  This last one is not a prerequisite but one we will pursue right away after determining you qualify.

V.  Creating a Successful Short Sale Package:  There are 16 steps to take that will help assure a successful Short Sale.  Putting together a complete package of information is required by the lender and anything less may result in your file being on the bottom of a very large stack of similar files.  This can appear overwhelming mostly because it's all seemingly a  foreign language to most people.  Working with an experienced Realtor will simplify the process and create a package acceptable to most lenders the first time around.

    1.  Prepare a Hardship letter with the assistance of your Realtor.
    2.  Provide a fully executed Purchase Contract.
    3.  Provide proof of the buyers ability to purchase, usually a pre-approval letter.
    4.  Provide a copy of Escrow Instructions.
    5.  Preliminary Title Report, provided by your Realtor.
    6.  Provide a HUD-1 Statement from an escrow officer.
    7.  Completed IRS Form 4506.
    8.  Completed Financial Statement, usually provided by lender.
    9.  Last two years Tax Returns.
  10.  Last two months pay stubs.
  11.  Profit & Loss if self employed.
  12.  Bank statements for the last two to three months.
  13.  Comparable Market Analysis or Broker's Price Opinion from Realtor.
  14.  A Market Narrative from you broker.
  15.  Marketing efforts documented by broker.
  16.  A formal request from the seller that the lender accept the Short Sale package.

If you or someone you know is behind or about to get behind on mortgage payments don't wait.  Contact me at Robert@FerrariPacificRealty.com or call 808-896-0661.