Metro Detroit Real Estate Homes For Sale

About a year and a half ago, I attended a day long seminar on foreclosures.  Short sales happened to be a secondary topic.  Led by an asset management company who listed foreclosures, they recommended it would be a good idea to do short sales.  That was the first I had heard of them so I kept increasing my knowledge of the short sale process until I finally successfully closed my first one.  For an explanation of a short sale, click here. If you are a buyer and want to know the ins and outs of buying a short sale, click here.

It seems that every other listing now says "subject to third party approval".  So not a surprise when our title company teamed up with a law firm to assist with short sales.  The law firm consults with sellers as part of an upfront fee that the seller pays.  The title company will collect the hardship package, contact the bank/lender and continue to facilitate the short sale.  However, not all are companies promoting short sale services are equal. 

A new title company (soliciting my business) recommended a third party who turned out to be a company that negotiated for an investor.  They find out how low the bank will go, sell to an investor and make their money on a percentage of the profit when the investor buys (very simplistic explanation).  I received an offer on one of my short sale listings (far below the home's value) which was contingent the buyer's representative taking over the process.  On the first scenario, it was my buyer and I was suspicious when they wanted to make sure that my broker would sign the HUD.  I realized they were doing something similar to the investor scenario I described.  While it is very tempting to have someone deal with all the paperwork, agents want to be careful when turning the process over to a third party.  It is a must for Sellers and buyers to get representation from a Realtor experienced with short sales.  Successfully closing and protecting credit is the ultimate goal. 

There were a couple of things I learned from the lawyer affiliated with our Title company.  The bill to extend the Mortgage Debt Relief Act of 2007 which "allows taxpayers to exclude income from the discharge of debt on their principal residence" has been extended to 2012.  The lawyer also said that he has been seeing a change in the amount being recorded on a Sherriff's sale.  Previously the lender recorded what was owed on the property.  Essentially this establishes the debt as paid since the initial debt has been recorded in a sale.  However, he is seeing lenders entering a low amount which allows them to go after the debt since technically they recouped less than the amount owed.  He suspects that they may start packaging them and sell these to debt collection agencies.  

While everyone (agents, sellers & buyers) should thoroughly read all closing documents, it is vital to take extra care in short sales.  The lender will agree to the short sale and release the mortgage but may not cancel the note or obligation to pay any deficiency balance (in light of paragraph above).  The lender may have written in some sort of agreement for the seller to pay back the deficiency amount.  While they can forgive it entirely, this is negotiable and lenders may agree to a reduced cash amount to be paid immediately or for a balance (negotiated) to be paid in some sort of note.

For things to know if you are buying a short sale, click here.

Metro Detroit Realtor selling Real Estate in Southeastern Michigan.  TishHouse sells Houses - selling Oakland County Real Estate with RE/MAX Showcase Homes in Birmingham, Michigan. Helping People in a challenging market by specializing in Short Sales. See what my clients have to say about my extraordinary customer service.  Follow me on Twitter.

What is a Short Sale?

The very basic definition is when a home is selling "short" what is owed to the lender.  Another significant piece is that the lender has to be willing to take less.  This means that s seller has to prove to the lender that they are incapable of making the payments and are about to go into default or already have.  This is known as proving "hardship".  For a lender to agree to take less, it requires a hardship package to be filled out by the seller to prove their financial status.  This may vary from lender to lender but usually entails submitting W2s, bank statements, hardship letter, itemized expenses etc.  Sellers have spoken to me about a short sale without realizing that all income sources must be reported like a 409K, other property owned etc.  I have had clients moving out of state, a spouse losing a job and other factors that may support hardship so it is wise for a seller to consult with a professional to see if they might qualify.  Lenders do not want to own real estate so they are becoming more willing to negotiate a short sale.

Why do a Short Sale?

Every good financial advisor will say that missing a mortgage payment has the biggest impact on a credit rating.  While a short sale will affect credit, it is not as devastating as a foreclosure.  Typically, in a short sale a seller may be able to buy another home within two years.  With a foreclosure, as with a bankruptcy, it may take 3-7 years before another home can be purchased depending on what has been done to restore credit.  The effect of a short sale on a seller's credit report often results in a loss of 200 to 300 points on a credit report and can stay on the report for 7 years.  Consumers are allowed to put a short statement on their credit report to explain the adverse information which may soften the blow.  When it comes to credit, there are many factors and it is best consult an expert-these are general indicators expressed here.

How to do a Short Sale?

Time is of the essence. In this market, homes can be on the market well over a year.  Anyone committed to lessen the impact on their credit and not go to foreclosure, should consult a realtor immediately and tell them the situation.  A Realtor gets the home sold faster than trying to sell it alone.  A realtor gets it the maximum exposure including having it listed on the multiple listing service (MLS).  In a short sale, sellers do not pay commission, title insurance and other costs associated with a sale-this is paid by the lender.  

After finding a Realtor experienced in short sales, do not try to sell it without disclosing the circumstances.  This will delay getting the cooperation of your lender and completing the necessary paperwork.  A short sale can be done even if a seller is not in default on their mortgage.  However the lender gives priority to those sellers who are in default and even more priority to those that have gone to sheriff's sale and are in the redemption period.  Once a default occurs, the process, including the redemption period, can take 9-12 months.  If a home is listed after it goes to auction, the time is significantly reduced.

When choosing a realtor, ask about their experience with short sales.  Ask how they will market your home including the resources they use on the internet.  Over 80% of buyers utilize the internet before they consult a realtor.  Above all, make sure you can work with your realtor.  This is a difficult time in one's life when you face losing your home and you want someone who is empathetic and listens to your concerns.

What Happens in the months to come?

The process can be at a couple of stages before a home has to be vacated.  It is advisable to contact the lender when you know you can no longer make your payments.  There are programs that sellers may qualify for to remain in their home.  Lenders do not want to own Real Estate.  Their ability to finance loans depends of not having inventory on their books. Many more lenders are willing to work with sellers depending what has caused the current circumstances.  There are no guarantees and it varies from lender to lender.

Upon missing the first (or second) mortgage payment the lender will call to evaluate the situation.  After missing two or more mortgage payments, the lender will send notice that they are proceeding with a foreclosure.  Keep all notices, names and numbers of the people from the bank.  This information will make it much easier for your realtor to contact the right people at the bank.  Once the notice of foreclosure is received, it must be published in the newspaper for four-five consecutive weeks and then it goes to auction.  Auctions are held regularly in a specific location within the county.   

Once a home goes to auction (sheriff's sale), Michigan allows sellers a six month redemption period in which time they buy back your home or remain in the home without making mortgage payments for paying taxes.  For farms and large parcels of land, the redemption period can be 12 months.  Even in the redemption period, a seller may still pursue a short sale.  Many lenders will continue to work with a realtor to complete a short sale during this time.  A realtor who works with that particular lender may be authorized to offer a seller "cash for keys" to vacate earlier and forfeit the redemption period.  Lenders cannot force a seller to leave until the redemption period is over.  If the home is not vacated six months after the sheriff's sale, the eviction process will begin.

I have represented both sellers and buyers in the short sale process.  If you have any questions, please contact me.

Metro Detroit Realtor selling Real Estate in Southeastern Michigan.  TishHouse sells Houses - selling Oakland County Real Estate with RE/MAX Showcase Homes in Birmingham, Michigan. Helping People in a challenging market by specializing in Short Sales. See what my clients have to say about my extraordinary customer service.  Follow me on Twitter.