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Real Estate Short Sale Miami |
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There are more and more
Short Sale popping up all over
Lenders are taking a lot less than expected on money owed.
Foreclosures are expensive for lenders and its something they
would rather not deal with.
We have been able to negotiate with lenders to sell a home for less
then the amount owed.
If you’re looking at purchasing a home or looking for a short sale
property ?
We can assist you in finding/negations and get you financing for the
purchase.
We area specializing in Short Sale In Miami
Brickell area
Let’s go over your scenario to see what your options are
Contact Us for more information |
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Unfortunately, short sales are a
reality for home owners who owe more than their property is worth.
Flat or falling home prices, home-equity credit lines, 100-percent
financing that sucked out equity, and spiking interest rates on
adjustable mortgages are converging to create a regrettable, but
expanding, niche for real estate practitioners: the short sale.
To help you gain a better understanding of short sales, we took a
look at some of the most common questions on this topic.
What is a short sale?
A short sale occurs when the net proceeds from the sale of a home
are not enough to cover the sellers’ mortgage obligations and
closing costs, such as property taxes, transfer taxes, and the real
estate practitioner’s commission. The seller is unwilling or unable
to cover the difference.
Some — although by no means all — short sellers may also be in
default on their mortgage loans and be headed for foreclosure.
However, home owners who bought at the top of the market or who took
out large amounts of equity with a refinance and who now need to
sell because of divorce or job transfer may also find themselves
upside down, owing more than the home is currently worth when
closing costs are factored in.
Tip: Losing your home can be very emotional and most people don’t
want to face up to the reality until foreclosure sets in. "You have
to have to have a very soft sell approach, but still keep sellers
focused on getting forms and paperwork complete," says Sheryl
Thomson, associate broker, Exit Island and Beach Realty, Merritt
Island, Fla.
Other sellers simply don’t understand that if they have assets, such
as stocks or a high-salaried job, a lender is not going to let them
just walk away from a short sale without signing a note to repay
what they owe.
How do I know it’s short?
A CMA will be your first indicator, but you also need to ask the
seller what their outstanding debt is and calculate the cost
associated with a sale — from transfer taxes to your commission.
This will give you an estimate of the net proceeds that will be
realized, often called the net sheet. This information can then be
entered into a HUD-1 Settlement Statement to calculate out the
final, negative result at closing. Some lenders also have their own
forms.
Check with the title company and the lender to get exact figures on
closing costs and loan balances and to find out what procedures they
have in place. If they can afford it, sellers should also consider
getting a home inspection to determine what repairs are needed on a
home and how this might affect its value, says White.
Tip: Get the seller to send a brief letter to all mortgage holders,
giving them permission to speak with you. Otherwise, privacy laws
will prevent them from talking to you about the loans.
If there are a first and second mortgage or a home equity line of
credit, you may have to talk to more than one lender to get approval
for a short sale. In addition, you may also need approval from the
entity that holds the pool of loans if the mortgage has been
securitized.
"The presence of two lenders makes a short sale more complicated
since it’s often the lender holding the second, or junior, mortgage
that has to absorb most of the loss," says White, who with Gina
Covello, e-Pro®, broker associate at Keller Williams Realty, Studio
City, Calif., teaches a course called “The Anatomy of the Short
Sale.”
Opinions differ, but most experts suggest that you let the lender
involved know as soon as possible of the potential short sale.
Others say you should wait until you have an offer because you’ll
get no action until then. “Without a viable purchase offer, your
deal won’t be considered by mortgagees.
Tip: Be sure you contact the bank’s loss mitigation department,
which will be the group to decide whether to accept a short sale,
rather than the collection or customer service department, which is
only interested in recouping past due loan payments. "Finding the
decision maker is often one of the biggest initial challenges in a
short sales," says Thomson.
What information will the bank need to decide whether to accept a
short sale?
The sellers’ submission package should include W-2 forms from
employers (or a letter explaining the seller is unemployed), bank
statements, two years of tax returns, and other financial documents
outlining income and debt obligations. The bank will also need comps
or a broker’s price opinion showing your estimate of value.
In addition, the sellers should submit a “hardship letter,”
explaining the circumstances that make it impossible for them to pay
the full amount of the loan. The seller needs to be able to show
true financial hardship. Someone with the assets or the income to
pay is unlikely to be considered, say most interviewees.
Tip: In preparing the package, be careful about discrepancies
between the seller’s income and the income used to obtain the loan,
cautions Lance Churchill, an attorney and instructor on short sales
and REOs with FrontLine Seminars. A big gap may indicate mortgage
fraud, unless employment circumstances have drastically changed.
What are the options besides a short sale?
Thanks to programs such as those proposed by Fannie Mae and Freddie
Mac to assist subprime borrowers, many lenders are more willing to
offer loan modification options. This option can extend the term of
the loan, add on delinquent payments to the loan principal, and/or
reduce the interest rate to make the loan more manageable for the
home owner.
Another option is a repayment plan that requires home owners to
increase their monthly payments until the loan is current, says Loni
Parmelly, a real estate practitioner and consultant who specializes
in short sales. Parmelly also is author of Success in Short Sales
(2004), a book she sells on her Web site. It may be possible to
refinance an adjustable rate loan with a Federal Housing Authority
or conventional fixed loan. Note that lenders will not postpone a
foreclosure just because a property is listed, although they may
postpone if you have a reasonable offer in the works.
Tip: The ideal candidate for a short sale is still making loan
payments and has a credit rating worth preserving. Otherwise, it may
not be worth going through the complicated process, says Steve
Pierce, broker and operating principal of Kteller in, Calif.
How should I price a short sale property?
In general, most short sale experts say to price the property at or
near fair market value, although a few will begin with the total
payoff amount owned by the seller. How frequently prices are dropped
will depend in part on whether the property is in preforeclosure.
Most banks have a formula for what percentage under market value
they will accept, say interviewees. Figures cited vary from 8
percent under to almost 20 percent under.
"I always price the property 10 percent lower than comparable to
peak buyer interest and initiate buyer activity," says Cole-Murphy,
who’s also founder and curriculum developer for Real Estate Pro
Guides, a line of educational books for practitioners. However, it’s
important for buyers to understand that the bank will not give away
the property, she says.
Tip: Most lenders will want to get a broker’s price opinion or even
an appraisal to see what the property is worth before you and seller
set a list price. One way to help ensure that the bank’s estimate of
value is realistic is to offer comps of recent sales — both
traditional and REO, says Churchill, who is also the author of The
Foreclosure Specialist: A Real Estate Agent’s Complete Guide on
Working in the Foreclosure Market (Valco Press, 2007).
“Practitioners who do BPOs are rated in part on how close their
estimates are to the final sale price, so they usually welcome
information on legitimate comps,” he says.
What and how should I disclose about the short-sale property to
prospective buyers?
Opinions vary on this topic, although most experts favor disclosing
that a property is a short sale in the comments section of the MLS
listing. Others suggest waiting to disclose the need for lender
approval of the sale until a buyer is ready to make an offer. Debra
Allen, ABR®, e-Pro®, with Prudential Arizona Properties, Gilbert,
Ariz., uses a disclosure form prepared by her brokerage just for
short sales. She also had a special sign rider for the yard sign
made indicating a property is a short sale.
Tip: Watch out for unethical investors who will try to convice an
owner facing foreclosure to sign a quit-claim deed for the property,
and then lease the property, warns Jim Cacioppo, broker/owner of
Grand Realty Group. Grayslake, Ill. In such cases, the former owners
will still be liable for the mortgage payments, even though they no
longer own the house.
How long does it take to complete a short sale?
Although response times vary from lender to lender, it can take two
weeks or as long as 60 days to receive an approval of a short sale
from a lender. That’s why it’s critical that buyers and their
representative understand and accept that time frame before they
make an offer.
An addendum to the California Association of REALTORS® purchase
contract includes a provision allowing either party to cancel a
short-sale contract within a set period if the seller hasn’t gotten
the deal approved, says White. Properties with securitized loans
(which are the majority these days) may require a longer time to get
an approval of a short sale because of the possible need for
approval from the entity holding the pool of securities, says
Churchill.
Tip: Keep in mind that the purchase contract on a short-sale
property is a legally binding agreement once the earnest money has
been deposited. Without language in the contract stating that the
lenders must approve the offer and release all liens on the
property, the seller may face a legal problem for failing to execute
the contract if the short sale is not approved, says Hollingsworth.
What can the seller and I do to make a short sale more attractive to
a lender?
Getting a lender to approve a short sale is primarily a question of
economics. You have to provide hard numbers to show that the amount
of money a bank will realize on the short sale is better than the
amount it may recoup from foreclosing on the property and selling
the property as an REO, says Todd Ruckle, ABR, RE/MAX Associates
Inc., Newark, Del.
A 2002 study by Craig Focardi of the Tower Group estimated that the
entire cost of a foreclosure was $58,759 and took 18 months. Other
factors that can influence a bank’s decision include the liability
risk it assumes by owning the property after foreclosures, the money
tied up during the holding period for a foreclosure and REO resale,
additional costs associated with an REO such as attorneys’ fees, and
the additional reserves it will need if REOs rise in the bank’s
portfolio.
Tip: A buyer that is willing to close in 30 days and who can make a
substantial down payment may make the deal more attractive than a
buyer who wants 95 percent financing, notes Michael Termine, GRI,
CRB, associate broker, Prudential Rand Realty, New York City. All
buyers should be preapproved for a mortgage before submitting the
offer.
However, to avoid unnecessary costs, buyers should wait on having a
home inspection and an appraisal for the loan until after the bank
has accepted the short sale proposition, say Cole-Murphy. Genuine
hardship, such as a lost job or high medical bills from an illness
may also have an influence, says Covello.
What are the seller’s options if a short sale is rejected by the
lender?
There are a variety of reasons a bank will reject a short sale —
from too low a price to too many files on the loss mitigator’s desk.
You can look for another buyer or even try resubmitting the same
contract. "Banks don’t want to take properties back in foreclosure,
so they are going to do everything they can to make it work," says
Pierce. You also need to prepare your seller in advance for the
possibility of foreclosure if a short sale fails, says Parmelly.
Tip: A short sale might be rejected if the loan is less than a year
old. In such cases, the servicer that’s bought the loan can often
require the original lender to buy it back, says Hollingsworth.
What financial or credit liabilities will a seller have as a result
of a short sale?
Many lenders ask sellers to sign a promissory note for all or part
of the difference between the proceeds of the short sale and the
debt obligation as a condition to a short sale. In such cases, the
note gives lenders the right to sue a seller and attach other assets
if the note is not paid when due.
It’s particularly important to understand this distinction if you
work in states such as California that have a nonrecourse mortgage,
says Churchill. In such states, the lender cannot pursue a
deficiency judgment against a seller for any deficiencies after a
property is foreclosed. Because of this distinction, sellers who are
already in default on a mortgage and do not have the resources to
pay off a separate promissory note after a short sale might be
better off letting the lender foreclose, he says. If you are working
in a state in which mortgage loans are nonrecourse, be sure and
alert your seller-clients to this distinction.
Tip: Having a portion of a loan forgiven may have an adverse affect
on the seller’s credit. Encourage your client to try and sign a
lease on an apartment before credit is further damaged, suggests
Roberta Murphy, an associate broker with Windermere Exclusive
Properties, San Diego.
What tax liabilities will a seller have as a result of a short sale?
One often overlooked aspect of short sales is that a seller must
count any amount forgiven by the lender as income and pay taxes on
that income, even if no actual money was received. The IRS requires
lenders to submit a Form 1099 stating the forgiven amount. Sellers
who meet the Internal Revenue Service definition of insolvency
(either in bankruptcy or with debts exceeding assets) will not have
to pay taxes on the forgiven amount.
Tip: The U.S. House of Representatives has introduced the Mortgage
Cancellation Tax Relief Act (H.R. 1876), which would eliminate taxes
on any debt forgiven on a principal residence through either short
sale or foreclosure. The NATIONAL ASSOCIATION OF REALTORS® has been
working to support this bill.
What compensation will I receive as the real estate salesperson or
broker in a short sale?
Banks are going to want you to discount your commission. "It’s the
first place they’ll look to save on closing costs," says Ruckle.
Rates offered can vary, but are typically 1 percent to 2 percent
below averages in the market, say interviewees. However, says
Hollingsworth, more lenders now seem willing to pay a full
commission on sales.
Tip: When you offer cooperative compensation through the MLS, be
sure you also advise potential cooperating brokers that the gross
commission established in your listing agreement is subject to court
or lender approval and could potentially be reduced. You might also
indicate in the remarks or comments field how you’ll share the
compensation you receive with the successful cooperating broker in
the event the gross commission is reduced, instead of locking
yourself to a specific percentage of compensation to the cooperating
broker, says White.
Where can I find clients if I’m interested in specializing in short
sales?
Word of mouth remains the biggest source of new business, experts
say, but you can also promote your services to individuals attending
credit counseling classes (now required prior to filing bankruptcy),
to people who receive state notices of loan defaults, and to home
owners named on lists of ARMs that will be resetting in the next few
months. To find buyer clients, creativity is a plus. For example,
Thomson is developing a monthly “Short Sale Hot Sheet” she e-mails
to investors.
Tip: FSBOs are another good source since many upside-down sellers
think they can’t afford to pay a commission and so try to sell on
their own. Many don’t realize that in a short sale, the lender pays
the broker’s commissions, says Churchill.
Are short sales for me?
With many more adjustable rate mortgages ready to reset to higher
loan amounts in the next couple of years, short sales represent a
growing sector of the market. However, because sales are time
consuming, they aren’t for everyone. "I always say that if you’re
going to succeed in short sales, you need the 3 Ps — patience,
persistence, and problem solving," says Cacioppo. |
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We area specializing in Short
Sale In Miami Brickell area condos, homes on short sale in Miami |
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