If you're thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won't cover your total mortgage obligation and closing costs. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process.

Consider a Loan Modification First
If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if there are any programs to help you keep the home. Your lender may agree to a modification such as re-financing your loan at a lower interest rate; providing a different payment plan or providing a forbearance period if your situation is temporary. When a loan modification is not available, a short sale may be the best option if:

• Your Property is worth less than the total mortgage that you owe on it.
• You have a financial hardship which you can demonstrate and document.
• You have contacted your lender and they are willing to entertain a short sale.

Short Sale Issues
If you are considering a short sale, there could be drawbacks. I suggest that all borrowers obtain competent advice from a real estate attorney and contact their accountant/CPA to discuss the ramifications of a short sale.

As a real estate agent, I am not licensed as an attorney or a CPA and I cannot advise on those consequences. Except for certain conditions pursuant to the Mortgage Forgiveness Debt Act of 2007, the IRS could consider debt forgiveness as income. There is also no guarantee that the lender accepting the short sale will not legally pursue a borrower for the difference between the amount owned and the amount paid (the deficiency).

Short Sale History and Time Lines
Two years ago, "short sales" were uncommon events in our area. Since that time, the short sale process has developed and evolved. Many agents are becoming "experts" by taking on line classes. I recommend that you work with someone who has closed a variety of short sales. My first two "short sales" were two years ago, one as the listing agent, and the other as the buyer's agent. Since that time, more than 80% of my listing inventory is short sales and bank owned foreclosures. My buyers often put offers on short sales or foreclosures because they are so prevalent in our market. I have a network of qualified attorneys and title companies that are very knowledgeable and available to assist me in the short sale process. My advice: Whether you select me or another agent, make sure that you are working with someone who is knowledgeable of the local market and who has real experience working with short sale properties.

Short Sale Financial Package
You will be required to provide detailed financial information to your lender. Each lender may have their own established criteria; typically this will include Federal and State Tax Returns for the past two years; Year to Date Income Verification; Verification of Expenses, Checking and Savings Account Balances, as well as balances in investments accounts and retirements accounts. You need to pull this information together, as you will be required to submit this information to your lender with a listing agreement and executed offer on the property. It can take sellers some time to get this information together, so I advise that you begin working on this as soon as you decide to pursue a short sale.

Listing Your Property
Your lender will require that your property be listed and actively marketed to consider a short sale. Keys to listing your property successfully include appropriate pricing based on current inventory and recently sold "comparable" properties. In a declining market, sales should only be considered that have occurred within the past six months (and less). Some agents will "pitch" for you to list your property well below market value so that "multiple offers" can be presented to your lender. Ethical considerations aside, this often backfires, as the "buyer" thinks they are going to get a great deal and your lender will typically "counter" at market value. The buyer does not pursue the counter-offer, and you are back at the beginning of the process. In the meantime, several months of activity may be gone while awaiting a response from your lender.

Pricing your property at current market value with regular price adjustments based on showing activity, feedback and offers (or lack of) will demonstrate to your lender that reasonable efforts have been made to obtain a fair price for your property.

The Offer
The Short sale package does not get submitted to your lender until we actually have an offer. It is not recommended that the seller counter and do pricing negotiation at this time, as the lender will ultimately be the determining factor in what the sales price will be. I have had sellers counter offers and not come to terms, which results in NO OFFER to submit to the lender. However, there are certain items that may need to be clarified prior to submitting the offer, to avoid unpleasant surprises at a later date. Lenders will not pay for Home Warranties. Lender will not pay for repairs. Offers that are submitted should be "As Is" and not contain extraneous items that you, the seller, or you lender will not pay.

Releases for Third Party Communication
As your agent, I will need to be able to speak directly with your lender, as will the title company that is working your file. Releases allowing this communication are required and obtained early on in the process.

Preparation of "Net Proceeds"
Once the offer has been executed, a title company, one with experience in short sales, will prepare a preliminary HUD that will be submitted with the offer. This document needs to be as accurate as possible as the "net" to the lender is the actual figure that the negotiator and the investors will be considering. I personally review these documents prior to submission. It is very important to have the costs figured to the date of closing, accurate buyer/seller closing costs, past due association dues and all other items should be comprehensive and as complete as possible.

Next Steps
Below is an approximate time line for the short sale process. It is important to know that each lender may vary and have different procedures in place. This timeline can be used as a general guide.

Approval
Once an offer is approved, the lender will typically give no longer than 30 calendar days for the buyer to close. It is important for the buyer to be ready to proceed, have their loan in place (if applicable) and be prepared to close quickly. Often times, buyers may feel that they have waited so long, they can "take their time". Not true! As your agent, I will work with the buyer's agent to ensure that they are meeting their obligations under the terms of the contract. If I am the transaction agent for the buyer and seller, I will coordinate with all parties to ensure that we have a smooth and successful closing.

As the seller, you may be required to sign a promissory note or bring funds to closing for your lender to approve the short sale. This also varies based upon the individual, the lender, and the investors that are involved in the short sale acceptance.

Summary
A short sale can be an effective means to avoid foreclosure. However, it is a complex process and each transaction will vary. There is no magic formula. Short sales require a great deal of attention to detail and ongoing follow-up. If you are considering listing your property, please feel free to call and we can discuss whether a short sale may be an option for you.