The Market 

                 "Selling Yourself Short!"

   Oklahoma ranks 28th in the number of defaults as of June, 2007.  There is an average of one in every 1,982 households in foreclosure in our state.  The good news is that this number represents a 30% decrease in the number of foreclosures from June, 2006.  Despite this good news for our state, many real estate agents are finding that dealing with a homeowner who is in defualt is one of the more challenging situations in today's market.
   The reasons for mortgage default vary, but the most common is the loss of employement.  The other reasons, referred to as the "Six 'D's of Default" are Death, Disease, Divorce, Denial, and Duty.  With the recent trends in mortgage fraud, however, I would have to add "Devaluatioin" of a property value as a contributing factor to properties going into foreclosure.
   Many homeowners are good candidates for a short sale.  A short sale means that the lender is accepting less than the total amount due and may be preferable to homeowner as an alternative to foreclosure or bankruptcy.  Not all lenders will agree to accept a short sale, expecially if it would be a financial advantage for the lender to foreclose (such as mortgage insurance).
   Let's take the example of a homeowner who is in default and owes $150,000 on a property that is worth $140,000.  What would you do if you were asked to take the listing?  Many real estate agents would walk away...unless they know how to handle a short sale.
   A short sale can only be considered during the pre-foreclosure process when the homeowner has:
              Stopped making payment on the mortgage;
              The home is still in the possession of the seller; or
              The homeowner is experiencing a financial hardship

   While every situation is different, a real estate agent can follow several simple steps towards a successful transaction.

1.  Verify the Current Market Value of the property.

2.  Contact the Lender.  You will usually deal with the loss mitigation department.  Ask the lender what its procedures are for a short sale.  Most banks will require that the services of a professional realtor be used in order to process the short sale.  The property must be publicly listed for sale (MLS).

3.  First and Second Mortgages.  If there is a first and a second mortgage or a home equity line of credit, a short sale can be more complicated. You will have to talk to both lenders to get approval.  The transaction may also be further complicated by the existence of other junior liens such as judgments or income tax liens.  The bottom line is that every lien holder must agree and participate in the short sale process.

4.  Obtain a Written Offer.  Most lenders will not consider a short sale without a viable purchase offer.

5.  Disclose the Short Sale to Buyers. You should speak with you managing broker about whether to disclose a short sale to your buyer. Many realtors have opted to disclose in the comments section of MLS.  If the buyer is made aware of the situation, you may be more likely to obtain extensions of the contract so long as the buyer is willing to be patient.

6.  Submit Letter of Authorization.  Lenders will not discuss the seller's personal information without written authorization to do so.  The seller should write a letter to the lender giving the lender permission to talk with those specific persons about the loan.  The letter should contain the property address, the loan reference number, the seller's name, the date, and the agent's name and contact information. 

7.  Figure Costs of Sale.  Add up all the costs of selling the property, including your commission and an estimate of the closing costs from the title company.  Work up a preliminary "net sheet" that shows the sales price, the costs of the payments due and late fees, real estate commission, closing costs from the title company, and foreclosing attorney's fees.  The seller will not be allowed to recieve any funds at closing.

8.  Hardship Letter.  The letter should describe how the homeowner is in a financial bind and should contain a request to accept less than fully payment.

9.  Financial Statements.  The Hardship Letter should be accompanied by a proof of income and assets.  Lenders are not in the charity business and will want proof that the seller cannot pay back any of the debt that the lender is forgiving.  This also includes employment paycheck stubs.

10.  Bank Statements.  You should include bank statements from the last two months.

11.  Comparative Market Analysis.  A CMA that shows the number of listings active on the market, pending sales, and sales from the past six months will give the lender a good idea of a declining market.

12.  Purchase Agreement and Listing Agreement.  Provide the Lender with a copy of the offer, along with a copy of the listing agreement.  Be prepared for the Lender to renegotiate comissions or to refuse to allow payment of certain concessions such as home warranties and inspections.

13.  Seek the Advice of an Accountant.  Always check with an accountant about the tax implications of a short sale.  The lender can report the sale as a relief of debt.

Short sales can take anywhere from one to six months.  It is important to work with a title company who has had experience in the closing of Short Sales.  Your title company can help make a difference.  For more information, contact The Allen Group at RE/MAX First, 405-843-8448.
Article Compliments of First American Title.