Short Sale and Pre-foreclosure 101:

I have received a lot of phone calls in the last several months centered around the same question.  What is a "Short Sale" and how does it work? 
I have provided the following explanation below to help you better understand how short sales work.

 

A Short Sale is a property where the seller owes more on the loan than the selling price or sales price... the proceeds of the sale fall short of what is owed.  In the short sale process the bank agrees to accept less than what is owed and in many cases will either discount the original loan amount to satisfy the mortgage or take the difference and have the sellers take a deficiency balance to be paid back over time. This will all depend on the sellers financial picture and whether or not they have the ability to pay back any money judgment from the lender.  I pride myself on negotiating with lenders to waive all deficiency judgment and have had great success doing so.

Negotiating a short sale with the lender is a difficult process, generally because it is a daunting task finding a bank officer who has the authority to accept a discount. Luckily lenders now have short sale departments set up internally making the level of communication much better for agents like myself with a great deal of experience dealing with them.  I then work with my team of short sale mitigators to submit all of the information the lender will need to review your short sale package.  You can expect to provide the following : Tax returns, pay stubs, bank statements, hardship letters...basically the same information you would provide in order to get a loan.  We also work with every seller to make sure their short sale package is accurate and the hardship letter outlines their difficulties making payments and being able to keep the property.

From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process - attorney fee's, the eviction process, delays from borrower bankruptcy, damage to the property, etc.  In a short sale scenario, the lender gets their money back faster, so it is able to cut its losses. My team's job is to convince the lender that it will fare better by accepting less money now.

The lender will want a great deal of  information about the property, the borrower and the deal offered. Specifically, the lender wants to know what the property is worth. The lender will generally hire a local real estate broker or appraiser to evaluate the property (called a broker’s price opinion or “BPO”). We also submit our own appraisal or comparable sales information to help justify a lower price. I also make sure to offer the BPO broker additional information about each property and the surrounding areas sales.  Many BPO agents are not familiar with the specific area or property and it is my job to make sure they offer the lender accurate information.  This is one area that many other agents who claim to know how short sales work miss the mark.  It always pays to go with experience.

Finally, the lender generally wants to see a written contract between buyer and the seller. The lender wants to make sure the seller isn’t walking away with any cash from the deal. Generally, the contract must be written so that the buyer pays all costs associated with the transaction, so that the “net cash” to the seller is the exact amount of the short pay to the lender. A preliminary HUD-1 settlement statement is often requested, my team and I provide all of this to the lender.

Once the lender receives everything they need to review the short sale, my team continues to contact them daily following up on the file and help answer any questions that may come up.  Once the lender gets the valuation information back from the BPO agent and have time to review the data, they will typically either accept the contract and offer a specific set of time-lines to be met or counter the offer and offer counter terms.  That is not the end of the line either.  If all parties agree to the terms from the lender in many cases it has to be sent to an investor for final approval.  From there is can still be accepted, countered or rejected.  We have had tremendous success gaining approval from this point and that is why we are the Short Sale Specialists in Charleston SC!   If you think you need to expedite a short sale don't hesitate to call or email me for a free no obligation consultation.

Are you a Short Sale buyer?  If so, please call or email me today.  You CAN NOT afford to put in an offer on a short sale without a highly experienced agent on your side.  Many listing agents will tell customers and agents they have experience processing short sales and do not.  You can get tied up in a short sale for months and never get the home! I can save you thousands of dollars and months in time.  Time is money and you can not afford to make a mistake with a short sale.  Call or email today!

 

Definitions

Notice of Default (NOD): The initial document (non-judicial) filed by a trustee that starts the foreclosure process, usually after the occurrence of a default under the deed of trust, or mortgage.   Both LIS and NOD are part of the PRE-foreclosure process.

Lis Penden (LIS): Notification of pending lawsuit. The initial document (judicial) filed by an attorney or trustee that starts the foreclosure process after the occurrence of default under the deed of trust or mortgage. Both LIS and NOD are part of the PRE-foreclosure process.

Notice of Trustee's Sale (NTS): A filing by notice announcing a public auction.

Notice (Judgment) of Foreclosure Sale (NFS): An order signed by a judge, directing a “ Notice of Sale” be published and that a referee (trustee) sell the property at public auction.

Real Estate Owned (REO): “Real Estate Owned” by the lender; the final step in foreclosure process. This document conveys property ownership back to lender.

Government-Owned (GOV): A foreclosed property offered for sale by the government. When a property purchased with a federally insured mortgage (i.e., FHA, VA) is foreclosed by the lender, the federal government pays the lender what is owed, takes possession of the property, and offers the property for sale.

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Glossary of Terms

Foreclosure: A legal procedure by which mortgaged property is sold, upon default, in order to satisfy a debt. Foreclosures generally are governed by state law, and rules may vary between States.  

For more details, visit our Foreclosure Overview of the foreclosure process, including links to relevant State Law.

Deed of Trust: A type of security instrument where the borrower conveys the property’s title to a third party (trustee) to be held “in trust” as security for the note.

Mortgage: A conveyance of an interest in real property, given as security for the payment of a debt. An agreement between two parties: borrower and lender.

Assignment of Deed of Trust or Mortgage: Assumption by a purchaser of liability for payment of an existing mortgage, or deed of trust. May or may not be accompanied by a release of liability of the original borrower.

Novation: The substitution of a new contract between the same, or different parties; a substitution, by mutual agreement, of one debtor for another, or one creditor for another. The result is that the old contract is extinguished, and a new contract is created, usually with the same content, but with at least one different party.

Declaration of Default: a document instructing the trustee (usually appointed by a bank) to prepare and record a Notice of Default (NOD), and if necessary, to sell the property at auction in order to satisfy the unpaid obligation or lien.

Full Reconveyance: a document prepared by a trustee, when an obligation secured by a deed of trust, or mortgage, is paid back in full.  Once recorded, this reconveyance eliminates the lien from the property’s title.

Junior Lien: a legal claim upon real property recorded subsequent to (after) another claim or legal obligation (for example, a senior lien would have priority in most cases).

Postponement: a verbal announcement made at the time and location of the scheduled trustee’s sale, resetting the auction for a later date.

Publication Letter: a letter, when signed by the beneficiary (lender), authorizing the trustee to prepare, publish and record the Notice of Trustees Sale (notice of auction).

Publication Period: a period beginning at the expiration of the default period, and ending when the trustee’s sale has been conducted.  During the publication period, the Notice of Trustees Sale is published, posted and recorded. Recession of Notice of Default: After an amount in default has been cured, or paid-back, this document, when signed by the lender and recorded by the trustee, removes the burden of the previously recorded Notice of Default. Reinstatement Period: The time period beginning when the Notice of Default is recorded, and ending five business days before the trustee’s auction sale. The default may be cured, or paid-back, at any time during this period by paying all delinquent amounts, including the trustee’s fees and costs.