It is the “buzz” phrase in the real estate industry. We
have been utterly bombarded with countless news broadcasts, articles, and
financial reports regarding a housing market and mortgage industry in crisis.
There have been both real and perceived effects on homeowners, lenders,
and real estate professionals alike. A rise in the number of “short sales”
is but one.
What exactly is a “short sale?” How does it work and to whom is it available?
Unfortunately, like any “buzz”, misinformation and misconceptions continue
to circulate.
A “short sale” is an agreement between a homeowner
and a mortgage lender whereby the lender agrees to accept less than what
is currently owed in satisfaction of the mortgage debt. Sometimes
called a “discounted payoff”, a “short sale” offers an alternative to homeowners
who wish to sell their home, but would otherwise be unable to do so because
their mortgage indebtedness exceeds their home’s current value.
During the past housing “boom”, many homeowners have purchased properties
for little or no money down and received mortgages that were fixed only
for a period a time. These mortgages are now converting to adjustable rate
loans and many homeowners are now, or will soon be, faced with an increased
mortgage payment; one which they may be unable to afford. Yet, due to the
current mortgage and housing trends, these homeowners are now unable to
re-finance or sell their home for what is owed.
Many homeowners have avoided the embarrassment,
long term credit impact, and loss of dignity inherent in losing their home
in foreclosure by negotiating “short sale” payoffs.
A “short sale”, however, is not available to every homeowner. Lenders
are not in the business of losing money! Lenders will only accept
an offer of a “short sale” if the homeowner can demonstrate a verifiable
financial hardship and it makes sound business sense for the lender to do
so.
When will it make sound business sense for a lender
to accept a “short sale”? When it is presented with a verifiable
disclosure of the homeowner’s financial status, the property’s current market
value, and its projected future value, all supporting the conclusion that,
when compared to a foreclosure proceeding, a “short sale” satisfaction would
minimize the lender’s loss.
A “short sale” is not, by any means, a simple request for a discounted satisfaction.
Nor is it a foregone conclusion that a lender will accept a “short sale”.
It is oftentimes a daunting and cumbersome task
to compile a comprehensive “short sale” application package and invest the
necessary “follow up” to ensure a lender’s review.
Most loss mitigation departments are now inundated with an unprecedented
number of “short sale” requests; a number which they are unequipped to service.
It is up to the presenter to get the application package before a workout
specialist authorized to render a decision on the “short sale” offer.
Who should present the offer of “short sale” to
the lender? True, realtors, attorneys, or any third party, if authorized
to do so, can present the “short sale” offer on behalf of the homeowner.
The homeowner may even present it themselves. However, it should be discussed,
understood, and agreed that the party assuming the responsibility to do
so possesses sufficient experience in navigating the myriad of lender requirements
and will invest the requisite amount of time, energy, and follow up necessary
to consummate the “short sale”.
Ferruggia & Calisto has assembled a team
of reputable and experienced real estate professionals, all uniquely qualified
to assist in the negotiation, presentation, and consummation of "short sale"
transactions.
It should also be noted that there are many considerations, potential pitfalls,
and consequences of a "short sale". For example, newly enacted federal legislation
has amended the potential tax ramifications for many homeowners. Additionally,
the terms of the "short sale" settlement may not always discharge additional
liability for the underlying debt. Obviously, it is imperative that a homeowner
seeking a "short sale" employ the experience, expertise, and attention to
detail as offered only by
