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Friday, September 21, 2012

Short Sales still a fact of the current market…


I had another short sale closing this week and have had more inquiries about short sales lately. Short sales are still a significant part of the current market, although, like foreclosures, they have declined as a percentage of total sales.

Just about the only thing that most people know about short sales is that the sale of the house is done for less than is owed to the bank. In other words, it’s a sale of a house that is “under water”. There are lots of misconceptions about short sales and some mis-information out there about them, too. I have created and run a Web site just for short sales in Michigan called mishortsales.com. There is lots of good reading material there about the process and the potential consequences on a person’s credit and taxes. If you or someone that you know is contemplating a short sale, that would be a great site to visit to find out more about this alternative to foreclosure.

I get asked a lot, “Can my family just buy the house in the short sale and rent it back to me?” The short answer is NO! Due to the amount of fraud in the early days of this recession, lenders all require the buyers and sellers to sign an affidavit that specifies that none of the parties in the sale are related in any way. That means that neither your relatives nor your in-laws can be a party to the sale. The way the affidavit is worded, even a family friend would be excluded. The bottom line is that you are not going to be in the house when it is all said and done. It’s gone. You’re out. Deal with that and get on with life.

There are lots of other questions that I get asked about short sales and they are covered in the FAQ section of the mishortsales web site. One of the big points that I try to get across at that site and help people understand is that a shot sale is way better than letting the property go into foreclosure or declaring bankruptcy. There are great articles to read about the credit and tax consequences of the various alternative routes that can be taken.

Another point that I make there is that this is a process that involves both real estate issues and legal issues related to negotiating with the lender(s) involved. I’m a Realtor® and I can take care of the real estate issue; however, I am not a lawyer, so I engage the help of a company that specializes in short sale negotiations and has lawyers on staff to help with those aspects. People considering short sales should understand how both sets of issues – real estate and legal – are going to be handled and by whom. I’m also not a CPA or financial advisor, which is why I have links to articles on the mishortsales.com website by people who are experts in those areas and can help you understand some of the financial and tax issues involved.

One aspect of short sales has remained fairly consistent – they take a long time. I normally advise people looking to do a short sale that they should plan on at least three months and as much as six months (sometimes even more) for the short sale process. Even though the banks have been doing these short sales for years now, they are still way understaffed and the internal process within the banks way to convoluted and committee oriented. It can take weeks to even get an answer to the simplest question or request.

And during this time, the crazy thing is that the bank can be pursuing a parallel course of foreclosure. Even though you have an accepted offer for the sale in-house they will often continue that foreclosure process, which can be confusing for the sellers, because they are getting two different sets of letters and communications from two completely different groups within the same bank. The problem is that the two different bank groups don’t talk to each other and don’t know what the other group is doing. Crazy? Yes!

So is a short sale right for you? Is it the right thing to do in your circumstances? Only a meeting with your Realtor can tell. You can read about the process and the things that you should have in order to pursue a short sale on my web site. Also on that site are some guidelines about what the expectations are on the banks, in terms of the reason (most often call the “hardship”) that they should accept as your justification for the short sale. Read the stuff there and then give me a call. We’ll discuss your situation.

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