The year of the Short Sale is upon us and one needs to be quick footed to maneuver through the complexities of each transaction to earn a commission. But what are the steps in the short sale process and how should one deal with the legal issues that arise?
The steps in the short sale process are fairly straightforward. The Realtor needs to do a proper property valuation to determine if the value of the property is less than the amount of the loans. If you are using a law firm to assist with the negotiation, then mention in the MLS that an attorney will be handling the negotiations. This will put buyers at ease knowing the transaction has a higher likelihood of closing and may keep the buyer from walking later.
When offers are received, each one must be presented to the seller, but pick the buyer that is the strongest – i.e. has the desire to live in the house, has the most money down etc. Take back up offers for your negotiator to use with the lender.
In the disclosures to the seller, make certain it is disclosed that there are complex legal and tax issues surrounding the short sale. The seller could be liable for the deficiency equal to the amount of the loan that is unpaid. In addition, the seller may incur tax liability if they receive forgiveness of a loan. There are certain exclusions, but the seller must know that the advice of an attorney and an accountant are crucial to relieve the Realtor of potential liability.
The short sale package needs to be sent to the lender. The contents of the package normally consist of the Listing Agreement, the MLS Agent Full Report, the Purchase Agreement, Short Sale Addendum, the buyer’s proof of funds and prequalification letters, an estimated HUD-1, the seller’s tax returns, paycheck stubs or a profit and loss statement, a hardship letter, the seller’s bank statements, and a BPO or CMA. Gathering this documentation and negotiating with the lender is time consuming, but until the lender has all the information they require, they will not move the short sale forward. This is one of the reasons many short sales drag on month after month.
Lenders are beginning to streamline their short sale departments to meet the growing demand and will issue an approval letter if the short sale meets their requirements.