I recently completed a short sale in Capitola, in which I represented the sellers. I had read a lot about short sales, taken classes on short sales, and listened to stories from veterans on short sales. Like anything in life the best way to really learn something is by just doing it.
In the current market, “short sale” is becoming a very common term. Sellers are using short sales as a strategy to get out from under a property that they can not afford to keep and the current market value is less than what a buyer is willing to pay. It is often the last resort to avoiding foreclosure. Buyers are using the short sale as an opportunity to negotiate a great price on a property. From my experience with short sales, the best advice I can give to anyone planning on dealing with them is to be extremely well prepared and plan on having a tremendous amount of patience.
For sellers, the most important thing to do is to hire a Realtor that is experienced in short sales and is willing to put in the time it takes to complete one of these deals. I recently represented the sellers on a short sale in Capitola, and must say that it took an incredible amount of time above and beyond the typical listing to get it sold. I was happy to do it because my clients were very cooperative and appreciative and I knew it would help them get out of difficult situation. However, if they had been unorganized or uncooperative, I would have been hesitant to get involved.
Just as with selling any residential property, sellers should have their homes in showing condition, and be prepared to be very cooperative throughout the process. I was fortunate to represent a seller that kept the home very clean and available to show at just about any time. You will also need to provide extensive documentation to prove to the bank that you do not have the income or assets to pay back the loan. Be prepared to supply tax returns, bank statements, and an explanation of the inability to repay. In this case, the bank even wanted to see what they were spending their monthly budget on.
Sellers should also have a back-up plan as there are many variables that are out of you and your Realtor’s control, and there are absolutely no guarantees that the bank will forgive you for the amount you can not repay. Of course, you should always consult with your CPA regarding the financial consequences of a short sale. The good news is that the federal government just passed a bill in December that no longer makes debt forgiveness a taxable event for federal taxes. Previously, if you the bank forgave you for $100,000 the tax code considered that a taxable event, and you would have had to report it as an additional $100,000 in income. There are also other factors to consider such as how it will it will be reported to the credit bureaus and affect your credit score.
For buyers wanting to purchase a short sale property I would also recommend working with a Realtor that is going to be patient, persistent, and knowledgeable about the short sell process. Check back to our blog later, as I will be writing more about the ups and downs of buying short sale properties