Short sales continue to be a significant portion of real estate sales in the Phoenix Az valley. And they affect each city to varying degrees. For example, short sales in Sun Lakes were 12% of the total sales in June 2011, while in El Mirage they accounted for 41% of the sales. Other cities were somewhere in the middle; Gilbert – 35%, Chandler – 35%, and Scottsdale – 23%. During the month of June 2011, there were 91 waterfront properties that were sold as a short sale transaction. Short sales provide a method for homeowners experiencing a financial hardship to sell their home. And lenders see short sales as a way to prevent costly foreclosures. Freddie Mac CEO, Ed Haladman, summed it best when he said, “Freddie Mac is doing everything it can to prevent more foreclosures, and short sales are becoming an ever-popular tool in situations where foreclosure is imminent and modifications have failed.” Properly negotiated short sales also offer homeowners a way to sell their homes without a deficiency judgement and in many cases the opportunity to purchase a home within 2 – 3 years. The above chart provided by The Cromford Report shows the percentage of 2011 June sales with the blue bars.
To be successful in completing a short sale, homeowners must be aware of the following:
1.) Investigate the available options. Just ask around and you’ll receive countless suggestions, recommendations and opinions. Is a modification a good place to start? That’s been a hot topic lately. Just walk away? A lot of questions to have answered. A good place to start is the Arizona Foreclosure Information Workbook. It is critical that a homeowner know the options so that when they decide to move forward with a short sale they’re committed to the process.
2.) Understand the underlying loans on the home. A critical factor in the ability of a lender to pursue a deficiency judgement will depend on the type of loan.
Purchase money loans are those used exclusively for the purchase of the home. HELOC loans are not. In a foreclosure, no deficiency judgment can be allowed against the borrower with a purchase money loan on a qualified property. Lenders understand this and are more willing to offer favorable terms for a short sale when the property is secured by a purchase money loan. Consulting a competent real estate attorney that has experience with short sales can be beneficial.
3.) Are there tax consequences to a short sale? Most of the discussion regarding tax consequences of an Arizona short sale and the accompanying tax consequence involves The Mortgage Forgiveness Debt Relief Act of 2007. This provision applies to debt forgiven during the calendar years of 2007 through 2012. Some restrictions apply such as the property must be the principal residence. Consult a qualified tax advisor.
4.) Understand the short sale process. First of all don’t wait until a trustee sale auction date has been set. Once that happens you are less than 90 days before foreclosure. And while you may quickly find a buyer, it is not uncommon to lose a buyer during the negotiation processs. The last thing you want is to lose a buyer 2 weeks before the foreclosure date. It may be the 2nd or 3rd contract that finally goes through. Don’t bet everything on a single buyer.
One of the most overlooked aspects is the marketing. Short sales must be marketed and presented better than a traditional sale because they are a higher risk transaction. Therefore, buyers must see something that makes them willing to wait. Owners must make the house pristine for the listing pictures. This is the new “first impression”. Few and poorly taken pictures result in fewer showings! Visual tours, panoramic pictures and extensive internet marketing is critical. When prospective buyers visit the home, its “showtime”. The house must show as well as any home on the market.
5.) Be prepared for an offer. Once an offer is received and mutually agreed upon, the short sale package must be delivered to the servicer and lienholders. This will include a hardship letter, tax returns, bank statements, pay stubs and other forms. Don’t wait for a completed offer before beginning to organize this information. And make sure you consult your Realtor regarding programs including HAFA which offer relocation incentives, up to $3,000 depending on the lienholder.
6.) Be Patient. Because the lienholder(s) must approve the sale, the approval process will take longer than a traditional or lender owned sale. While it seems that lenders are making improvements in the process, everyone involved must be patient. As mentioned previously, it may take numerous showings and 2 – 3 contracts before the sale is completed.
For more detailed information regarding the short sale process, feel free to call me at 480-326-8571. Or fill out the attached form to receive a complimentary short sale advisory and other information. I will also be glad to share my marketing plan to provide high quality exposure to all potential buyers.