Short Sales Offer Solution to Foreclosure Crisis - Part 2

By Annalisa Burgos, FrontDoor.com - Published: 6/15/2009

WHAT SELLERS SHOULD KNOW

Get help now. Talk to your lender and/or a real estate professional as soon as you know you can't make your mortgage payments. Huerta says struggling homeowners oftentimes will only seek help after they've already maxed out their credit cards and borrowed $80,000-$100,000 from their life savings to get their head above water.

"You don't have to be living under a bridge," Huerta says. "You don't need to exhaust every dime you have or wipe out your life savings. The sooner you seek help, the more options you'll have."

Work with a short sale expert. Once you decide to pursue a short sale, contact the major real estate brokers in your market and see if they have a short sale specialist. Get recommendations, research online and interview at least three agents. Ask to speak to their previous clients.

Don't worry about paying commission. Unlike a traditional sale, the lender picks up the tab for the broker's commission, typically 5 percent.

Establish financial hardship. The specialist will go over your financials to make sure you have a legitimate financial hardship that prevents you from making your mortgage payments, i.e. you received a cut in pay, you lost your job, you have no 401K.

Be patient. Lenders are inundated. "In April, Countrywide and Washington Mutual received 1,000 short sale applications a day," Huerta says. While deals have been done in 60 days, the process can take as long as six months. If you're in a hurry, a short sale may not work for you.

Scrape up some cash. Yes, you're short on it, but even putting in $1,000 can do wonders for getting a deal done. And it's peanuts when compared to the write-off you're getting on your home loan. One of Huerta's clients took out an $80,000 home equity loan to buy a car and jet skis, lost his source of income and made no payments on the loan. As part of the short sale, the seller agreed to repay just $4,500 of that 80K.

WHAT BUYERS SHOULD KNOW

Commit to the process. If you decide to buy a short sale, understand that the process needs your help to move forward. Don't wait until 60 days after submitting an offer to order the home inspection. Having all your ducks in a row shows the lender that you're serious and boosts your chances of getting your offer accepted. "Put money in escrow. Show the bank you're a real buyer. Do the appraisal and home inspections," Huerta says.

Short sales give you more control than REOs. Homebuyers are attracted to bank-owned foreclosures because of the perceived bargain they offer. But that isn't necessarily the case. An REO is often sold "as-is" and may require substantial work, especially if it has been vacant for some time. A buyer could end up with a serious foundation problem and not know it until after the purchase.

"Short sales are owner-occupied, so they're taking care of the home," Huerta says. "They're in better condition. They may be priced more than an REO, but you can negotiate things like inspections."

Skip the bidding war. An REO will typically get 16 offers, and a buyer may end up paying more than market value for the property, as opposed to the short sale in better condition down the street.

It's worth the wait. Buyers often prefer REOs because it only takes 30-45 days to close. Short sales, on the other hand, can take 60-90 days, or longer depending on the agent. But if you can afford to wait, you could end up with a better property in the same area for less money.

Put your money where your mouth is. Just as a seller should contribute some cash, lenders want to see a buyer with some skin in the deal. "You'd be amazed with the kinds of deals I've done thanks to $1,000," Huerta says.

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