So… if you are making an offer on a short sale property, here are a few best practices that will help to ensure your success. Basically, talking a good game will take you nowhere; it comes down to letting your actions speak for your intentions.

1. Start with a decent earnest money deposit …go with a binder in the range of 1 to 3% of the short sale price; anything less may appear a bit too casual.
2. Go with the stipulations – If the contract requires that the deposit be placed into a trust account pending the approval of the short sale package, don’t balk. Your earnest deposit should be just that.
3. Get a solid letter from your lender – Show ‘em what you’ve got and that your candidacy is as strong as your ability to come through with the financing. If an underwriter says you’re golden, you can’t be trumped.
4. If you really want this place, take it “As Is” – this is not a typical real estate transaction, don’t be nit picking about minor repairs and fees; odds are you’re getting a great deal…don’t jeopardize it with requests for a replacement garden hose or a carpet allowance for the guest bedroom.
5. Have patience – don’t go in thinking your deal is going to be the exception to the rule; plan on up to four months to close, hope to be pleasantly surprised, but be ready to go at any time.
6. Do what you say you’re going to do – although more streamlined than ever, the short sales process is a complicated and time consuming one; work with your Realtor and do whatever he or she advises.  

Bottom line, if you’ve found your dream home and you’re getting it at a bargain price, don’t let impatience or arrogance gum up the gears. Short sales may be around for a while, but you don’t want your dream home to get away.

The list price can’t be too high, too low, or based on your need as a seller. While there is no absolute magic number that the bank will accept, your property needs to be priced at the low end of the fair market value. Freddie Mac has stated that they would target the price at about 88% of the broker price opinion (BPO).

To succeed, an absolute must is to hire an experienced short sale realtor to get your short sale package assembled correctly and to navigate it through the process.

Despite the efforts of financial institutions to standardize the short sale process, idiosyncrasies abound; a seasoned short sale agent will know how to work each lender’s system to your advantage and will act as your true liaison.  When you’re working against a ticking clock you need knowledge and a spokesperson at your side.

Additionally, while the Economic Stabilization Act of 2008 abolishes the requirement to pay federal income tax on the forgiven debt for principal residences (extended through 2012), we strongly recommend that you seek counsel from a tax advisor or a short sale attorney.

Although you made the decision to pursue a short sale for all the benefits it offers over foreclosure, the last thing you want are any residual effects that can compound and catch up to you as only tax liabilities can.

Bottom line…take the time to assemble the right resources and your exit from the debt will be a graceful one.

But first of all, anything this good can be subject to fraud and corrupt people attempting to profit from misfortune; so distressed homeowners need to beware of disreputable people who make promises that they will help them get out of debt, but only stand to make money themselves.

While keeping the disreputable at bay, you need also beware of buyers. While they are obviously the critical component in a successful short sale, they must offer qualifications beyond the financial. Short sales take time and patience and you’ll need assurance that your buyer is in for the ride. So besides the obvious confirmations of lender pre-approval or proof of funds if they are cash buyers, please consider:

• Is the buyer making a reasonable offer or will it cause a short sale package rejection?
• Does the buyer understand that this process can take from 1 to sometimes 6 months to be approved?
• Will the buyer agree to spend money on things like application and attorney fees and inspections?
• Can the buyer offer flexibility on the closing date?

If there are any doubts about your short sale buyer, you may want to pass; it will cause you heartache and a waste of time you do not have.

And finally, beware of misinformation. You really can’t believe everything you read nor should you take advice from the “guy down the block” about your short sale – every situation is different, a short sale is a negotiation. So whether you are buying a short sale property or selling a short sale property, enlisting the assistance of a responsible and experienced Realtor is your first and best step.

The options that should not be explored are the ones offered by shysters who are allegedly helping people remain in their homes and “solving” their mortgage problems. This state of the union has bred many opportunists who are simply taking advantage of distressed homeowners only to fill their own pockets. Again, there is no magic bullet.

As far as options, the differences between foreclosures and short sales are probably pretty clear to most at this point. Contact us if you need guidance in those areas.

Some of the other alternatives for distressed homeowners include:

• Refinance
  • If you are current with your mortgage payments you may be eligible to capitalize on the current interest rates.
• Lender Workout
  • You don’t know until you ask…some lenders are making things work by forgiving back payments, adjusting interest rates, and even recasting existing loans.
• Sell and Bring Cash to Closing
  • You can avoid foreclosure by making up the difference to the bank if you sell your home for less than it is worth, but still make good on the debt. Some homeowners are reaching into IRAs and the like to liquidate assets for this purpose.
• Deed in Lieu of Foreclosure
  • This is not a viable option in all markets, but you may be able to literally trade in your home in exchange for the cancellation of the debt. In this scenario be certain to ask the bank to release the deficiency so you are free and clear.

Each of these options may have potential issues and may carry eligibility restrictions. Your first steps are to take full stock of your situation and then contact both an experienced distressed property Realtor and your lender. The thing not to do is wait…if you are a homeowner in trouble; time is not going to cure what ails you.

Pre-foreclosure – A home is in pre-foreclosure from the time of the initial mortgage payment default up to the point when the distressed property is actually sold. (Different states dictate different lengths of time.)

Notice of Default (NOD) – This is the notice sent to the borrower from the lender officially informing them that they have defaulted on their mortgage. This is the point when the foreclosure process actually begins.

Reinstatement Period – This is the period of time given to the borrower in which the borrower may restore their standing with the lender by making the back payments. The amount of time the borrower has to successfully reinstate is given in the NOD.

Short Sale – This occurs when a home owner owes more money on their home than they can gain in a traditional sale and is either unwilling or unable to make up the difference at the closing. This very specific process can be conducted with the aid of an experienced and licensed Realtor to work with the bank and the buyer to forge an agreement to sell the home for less than is owed.

Notice of Sale – If the borrower cannot reinstate the loan by the period defined in the NOD, a notice of sale is recorded that advises the date and location of the foreclosure sale.

Foreclosure Sale – The property is auctioned to the highest bidder.

Redemption Period – This is a period of time granted to the home owner that allows them to regain their property after the foreclosure sale. They must pay all costs including interest owed and the sale price of the home. Not every state provides this opportunity, but the redemption period in Florida is 10 days from date of foreclosure sale.

Real Estate Owned (REO) – If a foreclosure sale is not successful, then the property defaults to the lender.

Short sales can provide tremendous opportunities for buyers to get a deal and for sellers to avoid foreclosure, but they require close monitoring to be executed effectively. Please feel free to contact us if you have any questions about your specific situation.

For example, there are about (15) components that comprise an effective short sale package. Five of these documents include:

• The seller’s financial information
• The seller’s hardship letter
• The comparative market analysis (CMA) of the home
• The fully executed purchase contract (signed by both the buyer and the seller)
• Written proof of the buyer’s ability to purchase the property

Different lenders will dictate how they want all the information delivered, but just about all of them want a proposal cover letter or a “table of contents” page to facilitate their review of the file. Let’s face it…they can pretty much ask for whatever they want.

But with all the things that can go wrong with a short sale, one of the most common reasons short sales fail is due to an incomplete submittal package. If an incomplete package is delivered to the lender, many of them won’t stop to call and tell you what you need to do to rectify it; they’ll just set it aside. They may eventually get around to contacting you, but they are going to handle the ones that provided a complete short sale package first.

When time is of the essence and there is not a great deal a borrower can control, our advice is to control the things you can. So, follow the instructions of your short sale specialist to the letter, compile all the requested detail, and make sure everything is accurate and valid. It can be done; you just have to do it right.

First of all, short sale eligibility requires proof of hardship; and hardship is determined by a set of defined circumstances that change the homeowner’s ability to remain current with their mortgage payments. The following situations would signify short sale candidacy:

• The failure of your business
• The loss of your job
• Divorce
• Death of your spouse
• A natural disaster
• Insurmountable medical costs
• Illness

Your Realtor will help you organize and present all the appropriate short sale paperwork to the lender, but time is a factor in accomplishing a successful short sale.

The process needs to be initiated in the pre-foreclosure phase which begins with the first mortgage payment default. The foreclosure timeline in your state starts the clock against how long you have to list the home, find the buyer, and get the sale approved by the lender.

Consult an experienced short sale realtor to assess your situation and hopefully get you out from under.