Saturday, October 30, 2010

Selling Your Home - Las Vegas Short Sale Tips

The collapse of the general economy has left the Las Vegas real estate market in a shambles. If, like many, your home is upside down and you need/want to sell it, you are going to need the approval of your existing mortgage lender(s) to take less than what is owed. This is what we call a short sale, or pre-foreclosure property. Short sales are complicated transactions, so you can’t just hire your sister’s best friend who works part time in real estate to handle it for you. (Well, you can, but you may not be happy with the outcome.)

Who actually makes the decision to approve a short sale? As the seller, you will not be allowed to take any money from a short sale transaction. So you, the seller, really don’t care what you sell your home for. Surprisingly enough, your lender, who is probably only servicing your loan, doesn’t care either. The servicing bank merely collects the appropriate documents and presents the entire file to the investor who is actually holding the note and is owed the money. Literally, you could have two identical homes with two identical cash offers being serviced by the same bank and yet one will get approved and the other will not. It is entirely up to the investor holding your note how much of a loss they are willing to take.

Why would you short sale your home? The main advantage to doing a short sale is that you will ask your existing lender(s) to release you from any deficiency judgments. In other words, they agree not to go after you for the difference between what you owe and what the home sells for. (After a Las Vegas foreclosure they automatically have that right. On a short sale, this is negotiable.) In addition, if you can keep your payments current during the short sale process, it may not ding your credit too badly. While you won’t be able to finance another Las Vegas home for 3 years under FHA guidelines or 4 years under conventional guidelines, you should be able to buy a car or obtain credit cards. A foreclosure could prevent securing any type of credit for a number of years.

What will you need to provide to your lender to get a short sale approved? Most lenders will require the following documentation in addition to a multitude of standard forms:

· hardship letter – you are telling the lender in detail why you can no longer make your payments. Loss of employment, reduction of income, job transfer, divorce, illness, etc. In some cases the investor holding the note may still be willing to do a short sale even if you can afford the payments, but that is on a case by case basis
· last two paycheck stubs
· last two bank statements from all accounts
· last two years of tax returns
· financial worksheet showing expenses

What is the best way to go about a short sale? First of all, you would want to contact your lender to see if you qualify under the HAMP program or Home Affordable Modification Program. If you qualify under program guidelines, your lender may agree to reduce your interest rate so that you can afford to stay in your home. If you still can’t stay in your home for one reason or another, you may then qualify for the HAFA program or Home Affordable Foreclosures Alternative. Under this program you may get pre-approved for a short sale based and you may also receive relocation assistance up to $3k upon the sale of your home. Definitely something worth checking out.

The next step, whether or not you are HAFA eligible, is to hire a Las Vegas real estate agent EXPERIENCED in listing short sales. Your home must be listed on the local MLS so that the investor has a chance to receive the highest possible price on the open market. You cannot sell your property to a family member or friend either with the idea of buying it back later. Part of the bank paperwork you will be required to sign at closing is an “arm’s length” disclosure stating that you have no relationship with the buyer who purchases your property. (Breach of that disclosure is federal fraud and subject to severe penalties.)

Should you hire an attorney to help negotiate a short sale? If you have been unable to obtain a preapproved short sale under the HAFA guidelines, this is an excellent idea as long as the attorney you hire does not charge you anything at all, and only collects a fee from the bank’s proceeds upon the successful completion of the short sale. Your real estate agent should be able to help you locate a firm that has been successful in negotiating short sales, and the attorney should be brought in at the beginning of the listing process. Often if the investor proves stubborn about approving a sales price or terms of the short sale, just an attorney’s letter can alter the outcome favorably. Again, the attorney takes their fee from the bank’s proceeds at no cost to the seller or buyer.

How much should you list your home for? You are trying to establish a reasonable value for your home in the marketplace, keeping in mind that it is a short sale transaction which is not popular with either buyers or buyer agents as it may take months for them to find out if they even have a deal. Your agent should look at recently sold comparable properties and price your home at the bottom end of that spectrum but taking into account comparable condition and amenities. Once your home has been listed for several weeks without an offer, you want to do regular price reductions (your agent can advise you on how much is reasonable) until you are able to generate an offer with a solid buyer.

What happens after I get an offer on my home? Your lender, the servicing bank, puts together a file containing the contract, your updated financial documents and all documentation that you have tried to obtain the best price possible. They order a BPO or Broker’s Price Opinion (basically an appraisal) to establish market value of the home. They present this file to the investor for approval, rejection or, in many cases, counter offer if the BPO comes in higher than the sales price. If there is a counter offer on the price, the buyer may decide to accept the counter subject to a second appraisal of the property by the buyer’s lender. If both the buyer and seller accept the initial terms of the short sale approval, the buyer’s due diligence period commences. The buyer’s Las Vegas mortgage lender will order their appraisal and the buyer will complete all inspections and review any HOA documents.

Quite often the buyer’s appraisal is lower than the bank’s appraisal, and then the buyer will ask for a reduction of the sales price to meet that appraisal. The investor can either agree or disagree. Once a final price is agreed upon by all parties, the transaction proceeds pretty much as normal.

Why do most short sales fail? Most Las Vegas short sales fail simply because of the time it takes to find out if they are approved. Even the most serious buyer can become fidgety after a month or two of waiting to hear something, anything. That is why it is crucial for your agent to give weekly updates to the buyer’s agent, even if there is nothing new to report. Just a steady stream of communication can keep a deal alive. The second most common reason short sales fail is the difference in appraisal values between the short sale bank and the buyer’s lender. Again, a strong listing agent can go a long way toward documenting reasons for a lower sales price, though again this is ultimately the decision of the investor and sometimes those decisions seem to make no sense at all! But it is quite common to see the same Las Vegas homes for sale go into escrow several times before a successful closing. There is nothing wrong with the property itself, just the process.

That is why it is vital that the seller, the buyer and the agents all remain calm and be willing to jump through many hoops to a successful close. Guaranteed, there will be many hoops! But the patient buyer can get a great deal and the seller can walk away with a clean slate, and that is what makes it all worthwhile.