subject: What is "Short" About A Short Sale? [print this page] What is "Short" About A Short Sale? What is "Short" About A Short Sale?
I recently attended an information filled training program leading to a certification (Certified Distressed Property Expert, or CDPE), designed around helping homeowners who face tough choices on their housing situation -- it was an eye opener, and what came to mind was being between a rock and a hard place.
The end result of this training lead to a better understanding of what many practicing real estate professionals take in stride -- the short sale. However, although this invaluable training is available to any professional in the housing industry, out of the hundreds of thousands licensed professionals, and many thousands more in ancillary fields, the graduates of this program are few, which leads one to wonder, how capable are the agents who have not attended yet handle short sales presently, and how accurate or appropriate is the advice they give on the subject.
What is "short" about a short sale? For starters, the concept that a short sale is known for taking less time to process than the average sale is a misconception. Short sales are known to take much longer than your "usual" sale primarily because there are certain steps required to negotiate the sale with the lien-holder(s) of the property. Given that such a situation stems from one of several reasons: a mortgage loan with unfavorable terms, e.g., "sub-prime" loan that has negative amortization; loss of work; reduced income; business failure; damage to the property; death; severe illness; divorce, etc. it truly is a matter of presenting a compelling enough argument to the lien-holder(s) to win a hopeful approval of a short sale.
The "short" part of this type of sale is the discounts of existing balances or the removal, reduction or elimination of any junior liens from the title of the house. All loans secured against the house being sold will need to be "removed" from title if a new lender is to lend for the buyer. Furthermore, in order for a title company to issue title insurance there must be clear title.
Why would any lien-holder agree to discount the principal balance of their loan in a short sale? Most, if not all lenders have some form of insurance on their mortgages -- whether you knew about it, or paid for it or not. This type of insurance gives the lender a cushion against a major loss on a non-performing loan. This aside, many of the loans were originated at one bank and subsequently sold in tranches of mortgage backed securities to investors, which complicates getting approvals for any changes in loan terms or balances such as may be required in the short sale.
The underpinnings of the short salestrategy rest on getting all concerned parties to agree to certain sacrifices -- the lender, who will agree to some debt relief, which in turn can either result in obligating the seller to some consequences, e.g., a possible deficiencies, a possible personal guarantee for the offset amount, or a tax reporting for the amount of the debt relief, etc.These outcomes depend on the lender and the circumstances, but if you face any of these results, your next stop should be an accountant, a lawyer or both.
For a buyer entertaining buying a house under such conditions, it is paramount to understand that there will be delays, back and forth negotiations, and little to be done by the buyer other than cooperate with the seller or their lender's requests and/or conditions. In exchange for this sort of patience and understanding, a short sale buyer stands to reap a nice result -- a house discounted by as much as forty percent (or more) off the original price.
Where problems might arise is where the agent(s) involved in the transaction fail to anticipate and address any requirements the lender or servicers have to fully evaluate the sale (and discount). For instance, these transactions will need an estimate of value (BPO, or broker's price opinion) to establish a realistic price; also, they'll want a full and complete package of financial information, including a "hardship letter" from the existing homeowner to make sure that this transaction is legitimate, and not just some scheme to get out from this obligation. But more than this, a competent agent knows to prepare a complete package -- sometimes containing as many as 40+ pages of supporting (financial) information, for the seller's lender to evaluate!The agent's role in all of this is to avail all information as accurately and thoroughly completed as possible, observing the particular lender's guidelines.
If nothing else, the "Distressed Property Specialist" training gives any participant a complete overview of what to do, when to do it, how to do it and how to obtain the best possible outcome by doing it correctly the first time.
There really is nothing short about a short sale, other than tempers, patience and, sometimes, common sense, but if the "specialist" keeps his/her whit's about him the process can result in a successful outcome. A good agent insures this outcome by being prepared, competent, educated, knowledgeable and proactive -- something you gain, if not from experience, then from this world-class training program.
The next time you think about a short sale, be sure to ask if the person you're talking to is a trained specialist in short sales, having anything less leaves you with another sort of shortage, and that could be most costly indeed.
