First Steps to A Short Sale
I will hold your hand while you take your first steps on a Short Sale.
The name Short Sale comes from the fact that the payment to the lender is “short”. In other words, the lender is paid less than the full amount due on the mortgage when they release their lien on the property to allow a sale. So, when you have a home where the price needs to be lowered below the total amount owed, you need to consider a short sale. For years, Realtors turned down the listing on properties that were “underwater”, because they did not know how to get them sold.
In the early 1990s, the value of the homes in the Los Angeles went down dramatically. It had never happened before in my lifetime. If If I wanted to send my kids to college, I had to figure out how to get the banks to take less than the full amount owed. Walter Sanford in Long Beach, myself in Palos Verdes and a number of other agents in the southland presented offers to banks to get them to take less than what is owed. They hated it, but many of them were going broke and needed the cash now, not a foreclosure later.
So, your first step is to get the information together to show a bank why it is better for them to take less money than what is owed right now instead of any of their other choices, which is usually to foreclose on the house. Twenty year ago, it was difficult to convince the bank that the short sale was the best choice. Now, at conferences like REOMAC the top executives of openly present how a bank makes on average 30% more if they work out a short sale instead of foreclosing.
Show them the money! You will need to prepare a closing statement, commonly called a HUD-1, to show the net proceeds that the bank will receive. In escrow states, get the help of an escrow officer. In attorney closing states, take great care of a paralegal so you can get an abundance of closing statements. You can get software and do your own closing statements if you are unreasonably brave.
Be sure you have all the costs included in the HUD-1, and you may want to estimate high for any items that you do not have down to the penny. Why? If you get an approval of the short sale, the bank is going to write you an acceptance that specifies exactly how much money they will get. If the amount available at closing is less than that amount, you will either need to get a revision to the approval, which will take time, or find the money somewhere. Unfortunately, somewhere is usually the Realtor’s wallet. So, the first task is to get the money right.