Hot summer greetings! There's not not much excitement in the Northern Virginia housing market now, just a stable amount of homes on the market, a smaller percentage of distressed sales than in the last few years, and, on days like today, people mostly hiding inside. The million+ market in the outer regions is super slow, if you want to jump on the "invest in farmland" bandwagon. Here's a 127-acre property in Orange County, assessed for tax purposes for $1.5 million, going for under $1 million.
I've decided to add some guest posts, and perhaps change the title of the blog to something reflecting what's happening now. Guest articles here will originate from DLP Realty in Sterling, whose owners and agents have a long background in handling distressed properties, as well as tax law and finance. I think they are the best fit for this kind of blog, since their articles will be of an educational nature. If you have any questions for them, they can be answered through the blog comments.********************************
Pitfalls of the Short Sale Process
by Jose A. Barreto
Short sales can be stressful and time consuming. Already faced with an interest rate hike, a frustrating loan modification process, divorce or loss of employment, the borrower is now faced with a new challenge, completing a short sale before the bank forecloses on the property. It is a race against time that seems endless, but the repercussions of not following through far exceed the sacrifice that it takes to see the short sale to the end.
Being familiar with what lies ahead can make a short sale more tolerable. The process will still be frustrating, but having a basic understanding of the major steps should help alleviate some of that frustration.
Being prepared for the amount of paperwork needed is key. Gather your last two years tax returns, the last two or three months’ paystubs, your last two or three bank statements, HOA information (if applicable), condo association information (if applicable) your latest mortgage statement and any other communication between you and your bank. Prepare a statement explaining your financial hardship (hardship letter) and be as detailed as possible. Please understand that the bank will ask for these documents again, so every time you receive a paystub or a bank statement, forward it to your Realtor along with every piece of communication that the bank mails you. The process can take months, so understanding that the bank will continue to ask for updated financials will keep you on your toes and help the process go as smoothly. You will also be asked to fill out a Financial Statement, sign a listing agreement, etc. Be prompt in responding to these requests and take them seriously.
Valuation and Listing Price
Once the decision has been made to place the house on the market as a short sale, it is extremely important to list the property for the correct price. Too high, and the listing will go without an offer for an extended period of time, jeopardizing the process. Too low, and the bank will not accept the offers for the property. The house must reflect a discount against regular sales, but not too deep a discount. A good rule of thumb is to list the property for around 10% below what other similar properties are being sold for in the area. This will ensure interest without it being too low and ultimately you should receive an offer that will encourage the bank to negotiate.
As stated earlier, the short sale process is a long one. Many things can happen between the time a prospective buyer places an offer and the transaction finally settles. It is important for an agent to accept backup offers in case the original one falls through. Having a backup plan will allow the Realtor to continue the process without much trouble. If there isn’t a backup in place, it could take a while before getting another offer and this could seriously jeopardize the transaction, especially if the short sale has already been approved.
There is nothing more frustrating than having the short sale approved, having a willing buyer and have all conditions meet only to have everything fall apart due to an IRS lien on the property. The minute the decision is made to place the home for sale, the borrower should disclose any issues regarding credit they may have. Credit card companies, IRS & HOA are among the most common liens that appear on title during short sale transactions. The IRS is very likely to release a lien against the property with a copy of the short sale approval letter, a copy of the deed, a copy of the Settlement Statement (HUD-1) and a copy of the appraisal. These items will prove that the property has no value to the IRS and they will agree to release the lien pending the final Settlement Statement. Credit card balances and HOA dues can also be negotiated down during this process as they often will take what they can, knowing that the borrower is financial trouble. All of this should be done well in advance in order to avoid delays in the short sale process.
The Short Sale Approval Letter….read the fine print
Many borrowers are surprised at the end of this process when they get a sudden call from a lender (most often from a second mortgage) advising that they are trying to collect a debt. If not negotiated correctly, the short sale approval from a second lien holder will state that the borrower is responsible for the balance of the debt after the short sale is completed. This can be negotiated with a little effort from the borrower’s representative. Second lien holders are almost always in a bad position since once the property is foreclosed on, they end up with nothing. Negotiating this early on will help get the best end result for the borrower. It is very important to understand what is being signed at the closing table; simply signing the short sale approval without reading the conditions first is ill-advised. Be sure to read the fine print.
As you can see, deciding who handles this process for you is crucial. Do your due diligence and consult with a professional. Choosing the right one will save you headaches, and might end up being the difference between foreclosure and short sale.
For more information, visit us on our web at www.dlprealty.net or contact us directly at 703-444-9268.
© 2011 DLP Realty. All rights reserved. Permission is granted to copy this document in print or electronic form with the provisions that the article is not altered, and is copied in its entirety including this copyright notice.
DLP Realty, LLC
100 Pidgeon Hill Drive, Suite 100
Sterling, VA 20165
Phone: (703) 444-9268
Fax: (703) 444-1206