Monday Jun 29 2009
Exposing the seven myths of short sales
By: Dena Kouremetis and Beth Mergens
Rumors swirl about the current real estate market, and it’s often difficult to separate truth from fiction. We’ve decided, therefore, to clear up a few misconceptions. Myth No. 1: Foreclosing is easier than a short sale Banks really don’t want your house. They would rather not foreclose because the foreclosure process is incredibly costly. In fact, most lenders have publicly stated that if a borrower qualifies for a short sale, it should be the first line of defense. Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure. There are three pre-requisites needed to qualify for a short sale: • Financial hardship — A situation causing you to have trouble making mortgage payments. • Monthly income shortfall — In other words, you have more month than money. Lenders need proof that you cannot afford, or soon will not be able to afford, your mortgage. • Insolvency — Your assets would be insufficient to pay down your mortgage. Myth No. 2: You need to miss payments to negotiate a short sale This rumor has perpetuated but has now been elevated to mythical status. Today lenders are looking for a verifiable hardship. If you have a monthly cash flow shortfall and can show you are insolvent, you meet these three requirements. If you believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options. Myth No. 3: There is not enough time to negotiate a short sale before my foreclosure This probably hurts homeowners the most. Many people do not realize that foreclosure is a process, and there is time to make decisions. The foreclosing party — in most cases a lender — can stall a foreclosure up to the final day of the process. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will stall a foreclosure with a legitimate contract. Myth No. 4: Listing a short sale is embarrassing Recent estimates show one out of five homeowners in the U.S. is in the same situation. You are to be congratulated for admitting you need help, taking action, and finding a professional who can work with you toward a solution. In our area we are seeing up to 70 percent of all listings on the Multiple Listing Service, commonly known as MLS, in a short-sale status. Myth No. 5: Short sales never get approved This is false. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? No doubt. Are they impossible? Absolutely not. While there are no guarantees in any transaction, more and more short sales are being approved regularly, making it far from an impossible process. Professionals who have the Certified Distressed Property Expert (CDPE) designation are fully trained in methods to help homeowners in distress and process short sales. Myth No. 6: Banks are waiting on a bailout and not approving short sales The reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. Denying a short sale in the hope that some future legislation would pass and pay them for losses is preposterous. Freddie Mac recently hosted a national training Web seminar for real estate agents in which they expressly stated the organizational goal of “eliminating distressed assets through modification or short sale.” Myth No. 7: Buyers agents are not showing short-sale properties Potential sellers hear this all the time and it is untrue. Smart agents are getting calls from buyers who say they only want to look at foreclosure and short-sale properties. For buyers, short sales and foreclosures have become synonymous with good deals. Listing with an experienced agent who is educated in the short-sale process means you’ll have a better chance of quickly seeing a contract on your property. Our thanks to the Distressed Property Institute, LLC, providers of the CDPE Designation (www.cdpe.com), for furnishing this timely information. Visit writer Dena Kouremetis’ Web site at communic8or.com. You may reach RE/Max broker Beth Mergens at FolsomLakeHomes.com or at (916) 947-3993.