Don’t Take Away the Owner’s Lifeline
There are times when you should not do a short sale, or you need to do it carefully. If the seller has a home equity line of credit, it may be the only lifeline available to the family. If the seller can still withdraw any substantial amount of money from that line of credit, it may be the only thing keeping the family afloat while they look for another source of income. In the current economy, people who have lost their jobs or had major setbacks need to keep their one means of support in hopes that something will be found in time. If you are not careful, you could ruin their chances for recovery.
Some Realtors submit the financial information to the lender early in the process, to see if the seller qualifies for a short sale. The seller’s financial information can be fed into a computerized review system to see if the seller qualifies for a short sale. Most of us are familiar with Desktop Underwriter where a loan application is fed into a computer to see if a borrower qualifies for a loan. Some loss mitigation departments have software for the reverse situation, to see if the borrower is in enough financial distress to qualify for a short sale. In some situations, the loss mitigation department will review the financial situation before you have an offer and determine that the seller qualifies for a short sale. This can shorten the review process once an offer is presented.
The last thing you want to do is to give the home equity lender a financial statement showing that the borrower no longer is able to qualify for the home equity line of credit. Nearly all of these lines of credit have a provision that if your financial situation changes, the lender can take away the line of credit. By submitting this information while there are still funds available on the line of credit, you will be eliminating the one lifeline that the family has.
So, if you are going to do the short sale, you have to time it right. Be sure that selling the home is the best thing for the owner by determining if the payments on the house are substantially higher than the cost of other shelter available to the family. If the house payment is one of the things that is pushing the family “underwater”, the short sale may be appropriate. But, you only want to present the financial information at the last minute and keep the line of credit available as long as possible.