Jorge Chiriboga's Blog

A short sale is defined as an approved discount by a bank or mortgage lender of the balance owed by the homeowner as a result of two fundamental conditions:

The first one is when a homeowner is experiencing financial hardship such as loss of employment, an illness in the family, divorce, lack of savings, or any other situation that makes it impossible for the homeowner to keep current in his mortgage payments.

The second important condition is that the property can not be sold in the free market for what is owed on the property. Basically, the homeowner is upside-down in his mortgage. This situation is even more aggravated if the homeowner was not paying his mortgage for several months, and late fees, attorney's fees, and HOA dues have been added to the debt.

If these two conditions exist simultaneously, then the homeowner can hire a REALTOR® to list the property and request the lender to approve a short sale.

The benefits for a homeowner to use a short sale instead of walking away from the property is that this shows responsibility in part of the homeowner as he is trying to help the lender diminish its losses. That is why the impact on the homeowner's credit report is not as catastrophic as a straight foreclosure. Two years after the short sale, the homeowner will be able to buy again.

Once a contract is received and sent to the lender, the lender orders a BPO (Broker's Price Opinion) on the property. Sometimes they order two, from two different brokers, to  estimate the actual market value of the property. If the offer matches this value, the lender will approve the short sale, and the property will go to closing.

An important issue to take into account is that the difference between what was owed and what the bank receives is considered a deficiency judgement. In ordinary times, the IRS will consider this a taxable gift to the homeowner (ordinary income). However, for the time being this is not the case for homeowners as a result of the financial crisis.

Now, once we have detailed the short sale process, you should be aware of the following facts:

1. Only 2 out of 10 short sale listings close successfully. That is, the rest go to foreclosure anyway as the lender's realizes that they will make more money by going through a straight foreclosure as all the other debts (home equity loans, second mortgage, mechanical liens, etc) are wiped out with the exception of IRS liens, property taxes and HOA dues.

2. The listing price does not represent the actual price required by the lender as it is an estimated price established by the listing agent. The lender will establish the final sales price and they will attempt to sell for the highest "market value" possible. That is why lenders will not approve a short sale unless the property has been listed with a REALTOR® for maximum exposure.

3. The lenders are now receiving an average of 1000 short sale files a week so if the listing agent did not send "all" the required documentation proving all the above facts, the file will be moved to a second pile of incomplete files, and this will delay the process significantly.

4. Lenders are taking anywhere from 30 to 60 days to respond to your offer. Some other short sales may take up to a year.

5. Many short sale listings have been listed in the MLS for weeks and the listing agent continues to receive offers.

6. Many times lenders will not agree to help buyers with closing costs as this impedes them to recoup their losses.

7. Certified Distressed Property Experts (C.D.P.E) REALTORS® are trained to navigate through the complexities of this process.

So, the next time you consider listing or buying a short sale property, anywhere in the United States, hire a C.D.P.E. REALTOR® to help you navigate through this process. If you need one outside of Houston, I can help you find one in your area.

If you have more questions, please do not hesistate to Email me or contact me at 832-607-0149 for more information.

As a By Referral Only®, and C.D.P.E, REALTOR® , I am committed to providing such extraordinary service and expertise that you will gladly refer your friends, family and acquaintances. With your help I am able to build strong business relationships one person at a time.