What if I Owe More on my Home Than it's Worth?

It is unfortunate that some people who have to or want to sell their homes owe more than their house is worth in today's market. Some of these people can no longer afford their payments and think that foreclosure is the only choice.

There are choices. A foreclosure is NOT the only choice.

Today, I am going to explain another option, a short sale. Here are some current short sales in Nassau County.

In a short sale, you ask the bank to accept the current market value even though it is less than the amount you owe on your mortgage. A short sale typically involves no out of pocket costs for the seller. Some banks, however, will give the seller a small amount to cover moving expenses.

Many buyers think that by getting a short sale they are getting a bargain, but that is NOT necessarily so. It is more a way for a seller to get out of a bad situation that is not always their fault, and for a bank to avoid foreclosing on a property.

THE BASIC PROCESS OF THE SHORT SALE

1. THE FIRST STEP: In order to initiate a short sale, a seller must be able to show a "hardship:" A reason you can no longer afford to pay your mortgage. Examples are losing a job, illness, divorce, death or job transfer to another state.

2. CHOOSE THE RIGHT AGENT: You should use a local realtor who is experienced in listing, negotiating and selling short sales. Beware of people who charge you upfront money, or promise things that are too good to be true.

3. STARTING THE PROCESS: The bank will require (at least) the following documents from you: two years of tax returns, last two pay stubs, three months of bank statements, a list of income and expenses and a hardship letter explaining your circumstances. You will also need to give the agent permission to speak with the bank on your behalf for the short sale — this is called a Third Party Authorization Letter.

A. The listing agent will make preliminary contact with the bank to obtain any other forms or instructions they need to initiate the short sale.

B. The listing agent completes a BPO (broker price opinion), which is basically the same as a comparitive market analysis. It gives the fair market value for your home. The home should be priced at or just below market value. Too low a price might result in the short sale being counter offered or refused. Too high a price will result in no interest.

C. The listing agent then markets the property as they would any other property to find potential qualified buyers.

4. RECEIVING AND ACCEPTING AN OFFER: Thought the seller still owns the home, negotiations are through the buyer and the bank with the listing agent being the go-between. The bank has the say in accepting, rejecting and counter-offering. The buyer should be ready to close within 30 days of the acceptance of the short sale by the bank. If repairs are needed, they should be noted in the initial offer, not left to work out later.
 
5. SUBMITTING THE SHORT SALE FOR APPROVAL: To submit an offer, the buyers need to provide a signed sales agreement, mortgage pre-approval and proof of funds for downpayment — or, if it is a cash deal, proof of funds for the entire price. The listing agent submits the completed short sale package to the bank.

6. THE SHORT SALE APPROVAL PROCESS: Once the bank gets the file, the bank will assign a negiotiator for themselves. This could take anywhere from one to two weeks to months. The bank then will review the package, and if it's complete will order an appraisal. Once it comes in, the negotiator will review the appraisal versus what they would net from the short sale after all expenses.

7. THE BANK'S RESPONSE: Patience is a virtue. The bank can either accept your offer as is, or they can counter the offer for a higher price. Worst case is they deny it outright if the seller does not have a hardship or if the offer is just way too low. Then the buyer needs to decide what to do next. I have had short sales completed in under 60 days and others that have taken months — it all depends on the bank and the assigned negotiator.

While the house is listed, and the negotiations are proceeding, one of the most important things is for the seller to stay in their home. Leaving the home early lessens the negotiating power with the bank.

If you are thinking about initiating a short sale you need to work with a local, full-time agent who is well experienced in short sales. I have completed a number of short sales, and am currently involved in others. I know what needs to be done and how to do it, and I have the perseverance and experience to get them done.

If you have any questions, please contact me. If I can’t help you, I will direct you to someone who can.

Five Towns Real Estate Guide
Pugatch Realty Corp

Donna Galinsky
516-317-9253
dgalinsky@pugatch.com

Lenny Bobrow
516-784-0262
lbobrow@pugatch.com