Why a short sale might be the best move for you and your lender.

When a borrower is upside down on his home (the value is less than amount owed), and the borrower can no longer remain current on the payments, there are generally three options. One option is to do nothing. Eventually this will result in a foreclosure. A foreclosure does great damage to your credit rating. Also many employers specifically ask if you have had a foreclosure in the past 7 years. Jobs that require a security clearance are especially sensitive to foreclosures, so if you may need a security clearance you don't want to go through this process.  Each month you miss your payment, your credit is damaged. Some lenders wait six months to a year before foreclosing. So even before the lender takes back the property, your credit history is badly damaged.  Another option which really counts about the same as foreclosure is known as "deed in lieu of foreclosure". This saves the lender the cost of going through the entire foreclosure however the damage to your credit is very close to that caused by a foreclosure.

The next option is loan modification. Essentially changing the terms of your loan so that it is easier for the borrower to repay. Also, the Obama administration is working on a borrower mortgage assistance program designed to help those home owners at high risk of default.

But perhaps the best option is a short sale. This is when a buyer purchases the property at a price below what is owed to the lender. Here is why this is a win/win situation: The buyer gets a property usually in better shape than an REO (bank owned) at or just below market value. The bank sells the property for less than the mortgage, however this loss is much smaller than if the bank must foreclose (normally a foreclosure results in an additional loss to the bank of 25% - 36%).  The seller generally has much less damage to his credit rating (depending on the bank and the amount of time it took to close the deal). Another way to look at the damage done to your credit it to look at how long you would have to wait to qualify for another mortgage. A foreclosure stays on your credit record for 10 years, but usually you can qualify in about 4 or 5 years. With a short sale many people qualify for a loan in only two years.  It is always a good idea to speak with your attorney and accountant before deciding which way to go.

Public opinion (both sellers and agents) of short sales is largely negative. This is because short sales require a very different skill set to complete successfully. Many sellers and agents attempt short sales without first acquiring these necessary skills. The result is a short sale that never happens followed by a foreclosure.

In our local market only about 5% of the real estate agents specialize in short sales.  However agents who have specialized education and experience can help you through this difficult time.  At Keller Williams Check Realty I am part of a team that specializes in helping clients through the short sale process. Our team features full-time skilled negotiators for getting the best deal from your lender, BPO agents to get the best "Broker Price Opinon" on your property which can save you months of time.  Do yourself a favor and talk to us about your options.

Dave Conners 928 713-2663

Email me at: dtconners@cableone.net

Short Sale Package

All of the documentation needed to start a short sale is commonly called a "Short Sale Package" and is usually submitted by the investor interested in the property, the agent representing the seller, or the seller of the property. The package usually includes the following items:

Sample Short Sale Package (items may vary depending upon the lender):

• Cover Letter
• Authorization to Release Information
• Sellers Hardship Letter
• Seller’s Financial information
• 2 years w2’s
• 2 months pay stubs
• 2 months bank statements
• Supporting Hardship Info – HOA liens, medical/disability statements etc.
• Repair Estimate for the property
• Comparable sales for the property
• Contract
• Net Sheet
• First mortgage holder may ask for a payoff amount from the 2nd
• Second mortgage holder may ask for a payoff amount from the 1st
• Lender may ask for an Initial Title Report
• FHA and VA may have their own forms and special requirements as well