Where there is a closed door another will be opened. Going through a short sale can have advantages and as much as my pride was hurt a short sale after 2008 was the best of other evils. My family suffered a financial impact like most families during the mortgage and Real Estate meltdown of 2008 but none the less the mental hardship on myself and family was painful. Truthfully to this day it gives me no pleasure in recalling this time and sharing about it still bothers me, so why now? For those of you out there that need to know there is life after hardship. One thing that has always made America Great is our willingness to forgive and move on, even in this current environment when it doesn’t make sense, as Americans we have persevered through tumultuous financial times often coming out stronger for it. One example is after 9-11-2001, this evil action not only took many lives it also darned near buried us financially. Our markets have overcome that and yet even with the stall we are currently in I have great faith we will recover better than before. History suggests Americans will change direction and Leadership when we become uncomfortable, however it is sad most will feel it in their pocket book before they take necessary steps to correct it. Considering a foreclosure or a short sale is no different. Life situations may have overcome you financially and suddenly you find yourself behind on the mortgage and you are unable to catch up. It kind of works like this your first late payment is only 15 days late but the car breaks down or a health issue comes up soon after and since you don’t have but 15 days or less now until the next payment is due you make 1/2 the payment. You then get a notice you are a payment late, you call and are told 1/2 payments are held in a suspended amount so on you make the other 1/2 as soon as you can but by now you’re now 30 days late. The cycle continues until you are full 2 months late or more, sadly most Americans have less than 1 month’s salary in their accounts. At this point some serious financial disciplines kick in and in 2008 the property values dropped so homeowners found their home was worth far less than they paid for it. Does this scenario seem familiar to you ? In 2008 once a person was 2 months behind in their mortgage, options to bring it current were limited and none of them were feel goods. A refinance was out of the question because there was no equity. Many called their banks and ask for help and some but not many were given a one time forgiveness of their monthly mortgage payment that was added back into the principal due on the mortgage. Mortgage Banks were living in a dream world of their own in 2008 and held out for the economy to get better and here in 2016 the economy is still sluggish but moving along. Our government stepped in and realized the worst was upon us and much of it was self imposed due to little oversight and greed and actions were taken to avoid this from happening again. I was living in Texas at the time and although property values dipped considerably due to better than the average state oversight and regulation homeowners were not as deep upside down as Nevada, Arizona, California and Florida. Even so options were the same for homeowners. One, they could stop making payments and wait for the property to go into foreclosure. The bank would serve the homeowner notice and auction is scheduled. There are some differences in foreclosure procedures and time frames and procedure from state to state, however the end result is the homeowner eventually loses their home. The foreclosure is reported to the consumers credit reporting agencies and what follows is a reset for the consumer and since we are in America this same person can become a homeowner again however there are foreclosure waiting periods and comparably will remain on your credit report longer than a short sale.
The one immediate benefit to a short sale vs. a foreclosure is it is better on your credit report and allows the homeowner more time in their home. Find a Realtor experienced in short sales, ask a Realtor you know with experience for direction or google it. The process will involve getting permission from the lender to pursue a short sale, yes they have to give approval but this is not an overnight answer, in fact sometimes weeks resulting in more time in your home to gather your finances together. The property will go up for sale immediately in pursuit of a qualified buyer. When an offer does come and it will, the lender has to review it and determine if they will accept. This prices takes time usually more than 45-90 days, when we made an offer on a foreclosure the bank did not give us an acceptance for over 120 days. Some buyers do not want to wait that long, some buyers will want a deal and offer ridiculous amounts but if you have a good Realtor as I suggested earlier, the Realtor will provide good comparisons and guide both the buyer and the seller properly. In 2008 there was a significant amount of inventory in so many areas all over the United States meaning a file could sit on a desk until someone finds time to review it. This part has not changed a file will still sit on a desk until someone has time to review it. Without a doubt there are further reasons for delay in a short sale but this one seems to be common. When considering a short sale or foreclosure, consider where your finances are. A borrower may not be more than 30 days late on their mortgage but looking forward they may not know how they are going to keep it. One health issue could be the trigger to make drastic changes.
With a short sale and/or deed in lieu of foreclosure a borrower can buy another property sooner with a conventional loan. As mentioned above there are waiting periods after a foreclosure, short sale or deed in lieu of a foreclosure. The waiting period after a short sale ad/or deed in lieu of foreclosure is 4 years as opposed to 7 years waiting period for a foreclosure when qualifying for a conventional loan. The waiting periods for a FHA loan is 2 and 4 years after the date of discharge. A waiting period is the time after a short sale/deed in lieu of foreclosure or foreclosure a borrower must wait before they can be qualified for a new mortgage. Most people would have to rent so whether you rent or buy you will pay for the place you live but with some exceptions buying builds equity in ownership so the sooner a borrower can qualify the better. Another benefit of a short sale is the lender can offer up to $10,000 in moving credit, a nice plus getting some money to move out and into another residence. The savings for a lender to assist you and work with them benefits them in thousands of dollars in court costs. Short sales are a negotiation I cannot emphasize the importance of a Realtor or Real Estate Attorney can have on the outcome. America is a great place to be blessed to live, few places if any will offer an opportunity to start anew. No one who has ever seen this struggle will say it is an enjoyable and I am not suggesting by any means to use this as a chance to get out of something, I am saying a short sale can be a great option for a “redo”. Maturity and growth comes from experience both positive or negative, what a person chooses to make of it is up to them.
In the world of business any business plan less than 5 years is considered short term. The good news here the impact a short sale will have is up to you but the time frame is usually 2-3 years for credit improvement. When a borrower stops making payments on their property in question they will see a negative on their credit scores the first time they are 30 days late. Most of the time when a borrower has gone to the trouble of pursuing a short sale there are other impending factors on their finances resulting in an already banged up credit. In addition the borrower is considering the short sale because they cannot get what is owed on the property, in this situation it makes sense to stop making payments. These late payments will be reported to the big three credit reporting bureaus, however time will cure this, your pride may take time but keep your eye on the goal and the goal is to position yourself and family for the better. After a short sale is completed, it will show “settled”. It may impact your credit score up to 100 points or more, but creditors look closely at the last two years and you can qualify for a mortgage again.
I’ve said this twice and to be sure you get the idea, a Realtor knowledgeable of this process is HUGE, enormously important. You do not have to notify your lender if you employ a Realtor or hired an Attorney, they will do if for you. A Realtor will cost nothing out of your pocket, they will get paid when the sale is complete. You will need to give them authorization to speak on your behalf. If you decide to go it alone you will have to speak to the lender and jump through red tape and such, the representatives of the lender are trained to play on your emotions. Their interest is for the lender, not yours so if they can collect more payments from the borrower thats exactly what they will do. Let me say this is MY OPINION there are probably no studies out there but the peace of mind of a Realtor is worth your mental health. This transaction can be highly complex, especially if there is a Homeowners Association or liens involved, you will need someone to walk with you through the process. You will see letters to your address and some of them will be sent certified, the bank will have multiple hands in the pot. One side trying to collect and contact you and another side working on the short sale and cooperating with you. They will send a mixed message but in my experience it seems these many departments at the Lender don’t seem to communicate so keep your eye on the goal and that is a sale of the property. Forward all letters to your Realtor or your Attorney, let them worry about it, they will be paid by the bank to do this, it is their job and responsibility. There are often time frames for signatures and documents to be delivered to the lender so provide all letters and documents mailed to you to the agent or Attorney with no delay.
Once a borrower has decided to proceed with a short sale it will be in the borrowers best interest to put the house up for Sale right away especially if the borrower is behind on the mortgage payments. Every state has its own procedures and guidelines but for the most part if three consecutive payments are missed the house could be put up for auction at any time. Most lenders seeing you have a contract on the property will slow the process if not stop the process and allow it to work itself out. This makes more sense because a contract on the house nets the lender more money, sometimes no loss. There will be many documents to sign, listing the property, pictures taken, a sign in the yard (but this is optional). Once listed an offer needs to come in and submitted to the bank with all the required documents and then,,,,,,,,Wait for the bank/lender. During this time pay stubs and 2 years tax returns will be submitted by the buyer and then,,,,,wait for the bank. Again this is a time you will be glad to have a Realtor, this all takes time.
A short sale is complicated enough but then it is to be expected once the property is listed and put on the MLS, Realtors will call and set appointments to show the house. Arrangements to show and access to the property can be arranged through the Realtor you have hired. Again this is a load off of the sellers mind. When an offer comes in and is accepted by the bank, or a counter offer the negotiations begin between the buyer and the bank. Once they come to an agreement the buyer will often want an inspection of the property and then then wait on the bank approval. When an offer is accepted the showings will stop. During this time, rates and terms will be determined but as the seller you will not be involved, the seller will wait and will be told when the offer is accepted. Even after an accepted offer there could be 3-6 weeks before the home has to be vacated. If for some reason the buyer is not approved or the bank can’t come to terms the process will start all over again.
I hope this has provided some good information to someone, the process is stressful but sometimes necessary. The Larry Stepp Team at Gustan Cho Associates will be happy to guide you to a professional if you are having to go through this process. If this process is in your history we can qualify you for a new home even after a bankruptcy, foreclosure, short sale or deed in lieu of foreclosure. We are available 7 days a week, holidays and weekends.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com