Monday, December 6, 2010
Let me explain a Short Sale to you
Many people today are facing really stressing decisions. When someone is unemployed for a while their bills start to overwhelm them. The first instinct is to try to save the house. Some people will take every penny they have just to make that mortgage payment. With home values in a drastic free fall most homeowners have lost most of their equity. If you can hang in there until the market returns you might be alright but what do you do if you now owe more than your house is worth? You do a short sale.
Some people just sit back and let their home get foreclosed on. This is bad for you and the entire economy. A short sale is when you negotiate with the bank to sell your house and they accept less than you owe. The Realtor Association has been vigilant in getting the government to push the banking industry into working with you and me (the Realtor) to get your home sold. This past April they sent a standard set of rules that the banks are supposed to adhere to.
The best rule for you the home owner is if you work with them at the time of closing of the sale they will give you cash for keys. It is anywhere from $1000.00 to $2000.00. this is to help you move. The government has told the banking industry that they have pay the Realtors commission but limit is to 6%. This is good because a short sale takes an incredible amount of time out of the Realtor. Before this rule a Realtor would work sometimes 18 months only to be told by the bank sorry no paycheck for you!
If you are employed and have decided you don't want your house anymore and that you'd like to just get rid of it because there is no value a short sale will not work for you. In order to be an acceptable candidate you must have a hardship. Losing your job, losing a spouse, getting transferred these are acceptable hardships.
Another good thing about a short sale is that the government has passed a little tax loop hole for you. If you short sell your house the difference between what you owe the bank and what your house sold for used to be a taxable gain! I know this sounds nuts but if you sold your home for less and the bank forgave you the difference our government looked at that as a gift or some kind of gain and they taxed you on it. Really you can't get blood from a stone but they do try. Now if you short sale your house the tax rules give you a pass on this tax. Now here is where you have to pay attention. . . If you get foreclosed on you may be responsible for this tax!!!
So I'd say there is incentive to work with the bank and not just walk away. Also by doing a short sale the price of the house usually sells for 30% more than a house that has been foreclosed on. So by working with the bank and your Realtor it benefits all of us and helps stop this spiraling decline of values.
You would think that the bank is eager to work these out. No they are not! There are all sorts of reasons for this. I call it getting through the gatekeeper. The bank likes to see a house on the market for at least 90 days before they are willing to even talk about working out a short sale. The want to see a market history that you actually tried to get a sale price of what you owe on the house. They also want to see your financial statement. If you have 25g's in the bank forget about it! If that money is in your retirement account they won't touch it for now.
My job as a Realtor is to get through the gatekeeper. I will call these people several times a week and be treated like an idiot from them until one day they decide to work with me. One day they will be kind and the next day we can end up starting all over again. I often wonder about these people that work for the bank. Are they so overwhelmed with calls and other short sales that they can't possibly work effectively? Do they sleep well at night knowing that they made it a step harder for some poor guy in Ohio to work with the bank? Do these people have any training or do they know what they are really doing?
By the time you really get the bank on board you have usually had a offer that you called them about for several weeks. Finally you will know if they are working with you if they order an appraisal. The problem is we are in a declining market. An appraisal in todays market is worth less three months from now. So if that buyer walks away from the offer after waiting patiently for the bank to respond you now have an appraisal that will be too high in the present market.
If your loan on the house is an FHA loan the bank will only order two appraisals. I have to tell you the appraisers can only give todays market value and some of these guys aren't really that good. The bank has to handle the short sale according to FHA rules. The bank is going to ask FHA to give them the difference in what the house sold for and what you owed. This is what FHA is all about it is the insurance on the loan. Our government insured that you would pay this loan. That is why you paid extra money in closing costs when you purchased and you also had that ugly monthly MIP (mortgage insurance premium). I think our government has to get a little tougher with these lenders before they reward their business behavior with the insurance checks.
It is a quagmire but it is still worth the effort because it helps our entire country to do the right thing and try to get the best price for your house.