Written by: Jon Cameron
It is not easy to sell property when you owe more than what it is worth. It is even harder if you want to sell it fast. Even though the Real Estate market throughout the country has tremendously improved, property owners have come to realize that you need more than goodwill to sell your property successfully. In a short sale situation, where the home owner owes more than the property is worth, a successful sale is even more difficult. First, a homeowner must convince the lender to clear the title so that the sale of the home can be approved. If that doesn’t occur and the homeowner cannot keep up with payments, then the prospect of foreclosure becomes a serious challenge. Fortunately, home owners in a short sale situation or facing a foreclosed home for sale in Rhode Island have options. Homeowners wishing to get out of their home fast face these challenges everyday and many manage to save their credit while walking away with cash. How do they accomplish this do you ask? Well, first it starts with knowing the risks and challenges and then developing a solid plan. In many cases home owners may even manage to negotiate lower payments and keep their property.
It is always better to negotiate lower monthly payments with your lender. Sometimes an unexpected hardship may come up with unexpected expenses. In many of these cases, the bank will offer to waive fees for a refinance or even modify the loan altogether. However, in order to successfully do this, home owners must adequately defend their case. Another option to avoid foreclosure is to successfully conduct a short sale. If a home owner can properly present their situation to the bank, the bank can offer the option of selling the house at a price lower than the outstanding mortgage. This often has minimal impact on a home owners credit history allowing them to pursue home ownership in the future.
Foreclosures, on the other hand, often cause far more financial damage than a
a short sale home. In a full foreclosure, the home owner will most often lose their home and it will take at least 7 years to rebuild credit. Foreclosure may even have negative impacts on employment records and can be a determining factor when looking for a rental property afterwards. On a short sale home however, there is a much shorter waiting period to repair credit history and the damage is not as significant for employment and rental properties. Additionally, unlike a foreclosure, a short sale puts the home owner in control of how to sell their home and not the bank. With a careful, well thought out plan, homeowners can present the bank with the necessary information to successful facilitate a short sale.
Here are a some key things home owners neer to consider for short sale homes in RI:
Banks consider short sales if the property owner is able to prove that they have been subjected to legitimate hardship. These include circumstances surrounding a divorce, lack of employment, health issues death and bankruptcy. Issues like extravagance, desire to buy your own home, incompatibility with neighbors, vacations, etc. are not issued considered for hardship. Once the bank establishes that a legitimate hardship exists, then foreclosure procedures require the bank to consider the home owner’s short sale.
The next step is to prove that the price of the home is worth less than what is owed. This will require an official appraisal, usually conducted by a Real Estate appraiser or broker. This is referred to as a BPO- Broker Priced Opinion. Unfortunately, this is one step that is not within the homeower’s control and is completely in the hands of the appraiser. However, once this step is complete, the homeowner is that much closer to selling their home or readjusting their monthly payments.
At this point if a homeowner is still considering a short sale, the home will need to be in a default status. Meaning, the owner must be behind or have missed a payment. If mortgage
payments are up to date, banks usually will not consider a short sale as a first option. However, this is not always the case and banks will consider each case individually.
In a Pre-Foreclosure status, meaning the owner is less than 90 days behind in payments, banks will consider the total net worth of all assets. If the homeowner has the assets to meet the mortgage obligation, often times the bank will not consider a short sale. Proof of these assets include but are not limited to: bank statements, paycheck stubs, stock notes and tax returns. In most cases where the home owner has the assets required, a short sale becomes much less likely.
In most non-judicial states, short sales do not have a state approved process and leave the details to the local municipality. Understanding these details is a key aspect to developing and implanting a good plan. With a well thought out case, some municipalities make can the lender adjust the loan amount altogether to ensure the home stays current and occupied. Especially if the property is the homeowners primary residence. Some homeowners have even managed to have debt entirely wiped off. However, in most cases homeowners must make an agreement with the lender to meet part of the mortgage.
Homeowners should understand the typical amount of time required to conduct a successful short sale. They can be slow and frustrating. In most cases, it can take as long as 6 months to 3 years before the package and offer has been accepted. Knowing this helps the short sale team best facilitate the process on behalf of the homeowner
Another good fact to know is that the money adjusted by the lender on behalf of the homeowner can be considered taxable income and Banks are required to issue a 1099 tax form for federal taxes.
To successfully conduct a short sale, the homeowner must have a buyer willing to take on the challenges associated with the short sale process. In order to do this, the buyer’s mortgage company must have a cleared title from the previous homeowner’s lender. Without a clear title, obtaining financing is almost impossible since most title insurance companies will not sell a policy on that title. Title Insurance protects both lenders and buyers in case of a dispute after closing. The cost of such insurance policies is normally the responsibility of the buyers. However, the seller is responsible for providing a clear title.
How Does Someone without Real Estate Experience Successfully Conduct a Short Sale?
The key to success is sticking with experts who are thoroughly knowledgeable in this area. They will give a homeowner the best shot at avoiding foreclosures. Additionally, a good short sale Team will ensure the financial repercussions are limited if not avoided altogether. Professional Realtors and Real Estate Investors have the tools and networks needed to successfully navigate the world or real estate finance. Real Estate Investors can purchase the property with cash on the homeowner’s timeline and help them negotiate favorable terms with the bank. Real Estate Agents can help the homeowner sell their home on the open market and find a new property to live in when the process is completed.
Whatever the situation may be, homeowners ALWAYS have options. Sometimes it’s just a matter of having a conversation with the right person. Whether it facing foreclosure or deciding if a short sale is the best path ahead, homeowners should know there are many options and trained professionals they can consult free of charge. Who wouldn’t like to learn more about to sell their home for cash?