What the Heck is a Short Sale?

I wrote this blog a year ago and wanted to share again. Just thumbing through the archives.

Over the last several years a lot of buyers have bought homes, intending to live in them for many years, then something happened – maybe good, maybe bad, but regardless – they don’t have a choice. Some owners have to move.

When most homeowners move, they sell their house. Usually, that’s not a problem. For some people nowadays, it is a problem.

Because of the easy financing, rampant speculation, flipping, and sometimes fraud, home values skyrocketed most everywhere. That came to an end recently and values plummeted in some areas. Even when values are stable, sometimes there just isn’t enough money in the property to pay off the mortgage, then pay all the selling costs and moving costs.

What happens then?

Default, sometimes bankruptcy, and maybe even foreclosure.

Or a short sale.

A short sale is when the lender agrees to accept a mortgage payoff that doesn’t cover the outstanding loan.

Why do lenders accept short sales? Lenders almost always lose money when they foreclose on property. In many cases, they will lose less money through a short sale than they would by foreclosing on the home and selling it as a bank-owned property.

However, there are rules.

The borrower must experience a genuine financial hardship. Talk to customer service or the collection department and let them know what is going on. That way, knowledge of your hardship is communicated to the lender and becomes a part of their files. Keep your own communication log.

Eventually, you will have to document the hardship and your inability to deal with it financially by disclosing all your assets. Bank statements, stocks, bonds, tax returns, pay stubs — the lender will want to see everything that may document that you are not hiding assets or income.

The lender will not make a commitment based solely on your hardship. You’re also going to have to put your home on the market and sell it.

Once you sell the property, you have to supply additional documentation. When the property is listed, your real estate agent prepares a comparative market analysis. You’re going to need that and you will need to supply a copy to the lender, along with your hardship letter, the documents mentioned above, a copy of the purchase agreement, and a “net sheet” showing how much you will net (or lose) from the sale of the home.

It may be that you actually want your real estate agent or some other professional such as an attorney to negotiate with your lender. If so, you need to prepare an authorization letter. That letter includes your name, property address, loan number, your representative’s name, the date and your notarized signature. Your agent will know almost all of this and have the proper format.

Then your agent submits it all to your lender and…you wait.

Normally, your lender can’t make the decision to accept a short sale on their own. Your mortgage has an investor. The investor gets a say-so.

If the deal “makes sense”, they believe your hardship is genuine, and you do not own any other property — you may get a “yes” decision. Your chances go up markedly if you have someone experienced negotiating for you.

Oh yes! If your lender does forgive part of your debt, there is something you should also know. Debt forgiveness is taxable income. The IRS will require you to pay taxes on that income.

Enfield Home Sale Stats for the Month of February 2010

What is the scoop in Enfield? Let’s take a quick look

This is based on Residential Sales

15 homes were sold.  The median selling price was $196,250.  3 of those sales were over asking price,  3 sales were paid for asking price and the other 9 were under asking price. Here is the chart showing how much.

Buyers are not running out the door with a deal, but at least they are running with maybe 2-5% below asking price.

Is the market improving? Let’s see how many days on market homes are taking to sell in a 3 month span. See the chart below.

30 Day Span February 1, 2010-March 4, 2010

For the 30 day span, the average day on market is 95 days for active homes…for sold homes..106 days.

Looking at a 3 months span average active days on market is holding steady at 95 days, but the average days on market for sold homes is higher..at 124 days.

3 Month Span Dec 1, 2009-March 4, 2010

Now this can be many reasons…Winter in New England tends to be a slower season for Real Estate and that is def a HUGE reason for the slow down in a three month period. Homes that are under 200K though have decreased in days on market to average 67 days. That is a huge difference. Homes under 150K are on the market average of 45 days.  The tax credit is also a HUGE incentive for first time and second home buyers. Find info about it here

Really depending on what price range you shop in or live in, tells a different story. Enfield though is improving slowly. I do not think we will see prices as they were back in 2005-2007 for many years to come. Those were artificial prices and an artificial economic bubble.  The median home price in Enfield is $185,000.  56% of the residents have been here 5 plus years.

For marketing stats on your home in detailed to get a better picture of what is going on in YOUR neighborhood, visit

www.homevaluesinEnfield.com If you are a buyer, use it if you are shopping in a neighborhood and want to get quick stats, including info on the community & school system in your neighborhood.

Don’t live in Enfield, Ct? Check out your value at www.homevaluesinconnecticut.com

FHA Buyers- Condo Shopping? Make sure your condo is on the “approved list!”

Some big changes as of February 1, 2010 if you are a FHA buyer pursuing a condo. When considering purchasing Condos or Townhouses these project must have already been approved by the FHA and HUD. There is no exception to this rule and it is advised that you start your search for approved Condo and Townhouse projects here. Searching for Condo projects in your town is very easy and only takes a few seconds. Also keep in mind that when searching for these projects the HUD page will only display approved condo or townhouse projects in that zip code or town, so it is suggested you first make a list of zip codes you would consider living in then search for projects, then go to the list and compare.  If you do not see the condo complex you want to pursue as a home on the list, call your Realtor so they can get in touch with the condo association. If it is not on the government website, then it is a not go. FHA/HUD is not making any exceptions to the rules.

The reason they are doing this is because of the high amount of FHA loans that existing owners have in the complex & also the owner occupant ratio versus the investor (renter) ratio. Currently a condo complex must be more than 51% owner occupied. Best advice. Check the list & with your Realtor. It is not pleasant when you are half way through your home buying process and you find out after you pay all your loan fees that the condo you are purchasing does not qualify.  Or, you fall in LOVE with a condo, and then you find out you cannot get approved….do your homework! It will be well worth it.

You can check the list here