What is a Short Sale?

Who Is Realty 1st?

If you are serious about getting positive results in a tough market, read this article and
call 1-888-MARK-1ST or e-mail your question to Mark at mark@realty1st.net Mark Teytel is a Real Estate Broker who has practiced real estate in Georgia for fifteen years. He founded Realty 1st in Gwinnett County eleven years ago in 1998. The Agency has its head office at 3800 Holcomb Bridge Road, Suite A, Norcross and has operations in Louisiana. Realty 1st has been retained by major financial institutions and asset management companies. In 2008 Mark was the top producer for the North East Atlanta Metro Association of Realtors, Phoenix Award Recipient, confirming ten years of top production in real estate sales in Gwinnett County. Please note that any discussion of any real estate topic may involve legal and tax issues and in no way should these comments be construed as offering tax or legal advice in any particular case.

Q. I have recently heard people referring to the sale of a home as a “short sale” or “upside down” sale. What do these terms mean?

A. A short sale or upside down sale involves an agreement between a distressed homeowner and a foreclosing lender to avoid the time-consuming and costly foreclosure process where the sale price of the home is less than the value of the outstanding mortgage on the home. The homeowner agrees to list the property for sale, and the lender agrees to pay off the mortgage for a mutually agreed upon selling price, even if it is for less than the original amount owed on the loan. The seller’s real estate agent is normally the person who negotiates the agreement with the lender and then handles the sale to a new purchaser.

Q. I have been told that the amount of my home loan is greater than the value of my home. Why will a lender take less money than is legally due?

A. Foreclosure in the current market is devastating to both the lender and the owner of the home. Any homeowner who is facing foreclosure should not feel humiliated. The current extremely weak financial condition of the nation, housing market and employment is mostly a creation of inept financial bungling of our “ruling class” politicians in Washington. The United States is now ranked as one of the world’s most highly taxed nations with massive spending. Realty Trac at www.realtytrac.com  lists 3,302,298 foreclosure filings nationwide for the year to date and 120,051 for Georgia. Gwinnett County has averaged 1,337 monthly foreclosure filings for the last four months according to www.atlhomeforeclosures.com . A closer look at these numbers reveals that only about 20% of foreclosed homes get sold on the courthouse steps. That means that lenders are getting stuck with a massive number of unsold homes.

A lender who is stuck with an unsold home now has a massive liability on his hands. He is required to pay all of the utilities, county taxes, insurance, association fees and upkeep on a typically vacant non income producing property that may also have and liens attached to it. The property may be in disrepair and have local county notices attached that deal with health or building code infractions that need to be dealt with immediately. That means he may be very willing to negotiate a short sale with a homeowner who is acts in good faith and who is well prepared to navigate the short sale process.

Q. Why should I bother with a short sale when I can allow my home to go into foreclosure and forget about it?

A. Many homeowners succumb to various financial issues such as a loss of a job and income and allow the foreclosure process to roll right over them without putting up a fight. In many cases the homeowner owes more on their mortgage than the house is worth. A negotiated short sale has a number of benefits that are less damaging than a foreclosure.

In a foreclosure situation the homeowner is liable for the outstanding amount of the loan on their home and the lender may pursue the homeowner for the amount of his loss after the home is sold. In a negotiated short sale situation the homeowner and lender commit themselves to a set of written terms that may allow the homeowner to limit his liability and stop any further action against them once the home is sold.

A negotiated short sale is recorded on the homeowners credit score as “paid as agreed” which generates less adverse credit reporting than a straight out foreclosure which implies that the homeowner has evaded his obligations.  In many cases it is possible to apply for an FHA home loan from twelve to twenty four months after the short sale is concluded. A foreclosure stays on your credit report for seven years and may stop you from getting home finance for five years or more.

This also helps your credit score if the homeowner needs to rent a home in the meantime as the landlord will impose less stringent conditions on the tenant. A landlord can ask for a bigger security deposit of up to several months rent when the tenant has a low credit score.

Q. Why should I hire a realtor to sell my house when I may be able to do this myself and save a lot of money?

A. Most homeowners who are selling their homes think that a Real Estate Agent’s job is to run some advertisements, post a “For Sale” sign in the front yard and drive some folks over to look at the home. This may have been the case when the economy was booming and home loans were plentiful and easy to get. To-day’s real estate market is radically different and it now requires a multi-skilled team to sell a home. This situation applies even more to a negotiated short sale situation which is something rare to the residential real estate market. This only happens when prices are falling which is highly unusual.

Q. How can my realtor help me more than I can help myself in a short sale situation? What extra skills does a realtor bring to the table?

A. It is very important to have an experienced Real Estate Agent like Realty 1st assist you to complete a short sale which requires that a number of different people co-ordinate their activities throughout the short sale process for the sale to reach a successful closing and allow the distressed homeowner to start the rebuilding process. We carry out between 200-300 valuations each month for banks who are selling foreclosed properties and for a variety of other clients who are dealing in properties many of which are in the Gwinnett Count area. This allows us to get an extremely good fix on the current market value of homes.   

Many qualified professional real estate staff may be involved in the steps required to successfully process your short sale within the timeline and terms set down by your lender. It is very important that all of the steps be coordinated with the lenders terms as a break down in communications and failure of terms may void the short sale.

The valuation of your home needs to be very prompt and accurate otherwise a lending bank will reject a short sale proposal as being too far outside the market and impractical.

A Marketing Department creates listings and traffic. It carefully follows monthly status reports that show the total number of showings, offers and contracts issued on your property and how many of those offers will generate a succesful closing. This is a business where we calculate the odds of reaching a successful closing and that is very important when we are attempting to help a distressed homeowner negotiate with a lender to reduce the amount owing and find a willing buyer to buy his home.

A Buyers Agent Department captures leads and motivates purchasers to take action so that the realtor can direct them to purchase the properties that have been listed.

A Closing Department deals with banks, attorneys and new rules from Government Departments such as RESPA, which requires the provision of easy to understand closing statements and settlement procedures. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.

Q. What is a “third party authorization” letter?

The first stage of the process requires the distressed homeowner to sign a “third party authorization” letter that allows Realty 1st to negotiate with the lender on behalf of the homeowner.  This allows us to negotiate the amount of money that the lender will accept in full settlement of its claim and the terms under which this will happen throughout the short sale process. 

My next set of questions will deal with Loan Modification. Please e-mail Mark Teytel at mark@realty1st.net with your questions.