Helping Select Atlanta Homeowners Avoid A Foreclosure
One of the most difficult decisions a homeowner can make is to take action to leave a home they can no longer afford to keep. It is so difficult that most homeowners will freeze like a deer in the headlights - and then get mowed over by the sale of their property on the courthouse steps. Others will list their property for sale - but at such a high price that it will not attract any offers - once again resulting in foreclosure.
In today’s market, it is not uncommon to find many homeowners who do not have sufficient equity to sell their homes at market value - and still be able to pay all the expenses of that sale, which could include repairs, closing costs, and brokerage fees.
There is an alternative for many homeowners who find themselves unable to pay their mortgage - but it requires a proactive approach. It is called the short sale. A short sale occurs when a property is sold and the lender releases their lien for an amount less than what is owed. For this to occur, any secondary lienholders must also agree to release their liens, in most cases for substantially less than what is owed.
For a variety of reasons, not all attempts at a short sale can work. Homeowners who have ample assets will NOT be able to get a short payoff approved. Second mortgages and other liens on the homeowner’s property - particularly IRS liens - can make the process very difficult to navigate, though not impossible.
One of the primary reasons for selling your home under the terms of a short sale is that you avoid a foreclosure. There’s nothing like the big, black mark of a foreclosure on your credit file… and many candidates for a short sale have otherwise fairly decent credit histories. While you will have some credit damage from late payments, a properly performed short sale will show your debt as paid in full - which preserves a great deal of your credit history that a foreclosure would otherwise destroy.
Another reason is that if you lose your home to foreclosure - and the lender sells the home for less money than you owed - the lender can seek a deficiency judgment against you.
In the past, when your lender accepted a short payoff, you would receive debt forgiveness… often accompanied by IRS form 1099-C showing the forgiveness as taxable income. Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return.
So you see - a short sale can be the best path to take when you can no longer afford to keep your home.
Time Is Precious When Selling Your Home By Short Sale
The biggest mistake you can make is wasting time with an ordinary agent with an unrealistic list price. That is a recipe for disaster! Most agents don’t have the foggiest idea about how to properly price a property to sell at a price that the lender can be convinced to accept.
Let me rephrase that. Your agent needs to be able to perform a comprehensive Broker Pricing Opinion - as well as take a variety of other factors into consideration - when putting the right price on your property. This price needs to be low enough to attract a buyer - without being unreasonably low, as your lender has to be convinced that your home could not sell for a higher price.
When an initial price has been established, systematic price reductions must be made - usually weekly - until an offer is presented. Keep in mind that as a homeowner who is seeking to sell by short sale - you are on a runaway train heading for the proverbial washed out bridge. You have a very limited amount of time to present an offer to your lender, so first and foremost - you need an offer. Without an offer, you have nothing - as it is difficult to convince the lender to refrain from proceeding with the foreclosure without one.
Once an offer has been made and accepted, your agent will prepare the short sale package (or will contract a company to prepare the package for them) and then begin negotiations with your lender and any other lienholders.
This is a strange twist for many agents, because at this point - your agent becomes an advocate for the buyer. Your agent is working to get the buyer the property at the price s/he has agreed to pay… because a short sale at ANY price is in your best interest. Your agent has to convince your lender (and any other lienholders) that the short sale is in their best interest, too.
Since you can not receive any money from any party when doing a short sale, the sale is the ultimate goal - not the price.
Be Wary Of The Tsunami Of Offers To Help In Your Mailbox
When your lender serves you with a Notice Of Default, your mailbox will be stuffed full with offers to "help". Most of these "offers" are nothing more than buzzards trying to profit from your misery. Many will offer to give you some "walking away money" in return for you signing your home over to them. Others will offer - for a fee - to bring your mortgage current and lease your home back to you.
It wouldn’t be so bad if the offers were only given by mail - but these people are relentless… and many of them will come to your home - often several times - in their quest to "help".
I won’t say that ALL of these offers are scams, but I will say that MOST of the people making these offers are nothing more than vultures preying on the unfortunate. There are countless instances of these people talking homeowners into signing over their deeds, offering to take over their payments - but the homes were still foreclosed, as the "helpers" did not make any payments or bring the mortgages current as promised.
To best protect your interests, you should only allow licensed professionals to assist you - not just anyone with a business card and some fast talk. You can sell your home by short sale with no out-of-pocket expenses on your part, as your lienholders will pay a reduced brokerage fee to those professionals who can perform a successful short sale.
When Is The Best Time To Get Started?
If you have missed a mortgage payment or two, and you do not have a realistic plan to bring your mortgage current - you need to act NOW. Time is not on your side.
Most lenders will not serve you with a Notice of Default until you are at least three months behind, so this extra time will be welcome in building your case for a short sale. Your agent will have more time to establish the true market value of your property and obtain an acceptable offer.
Over the last few years, I have referred potential short sale homeowners to other agents with mixed results. I now have a better idea of who the ideal candidate is for these types of transactions - and a better idea of how to prepare the short sale package for the lender and other lienholders. I am now able to refer these clients to other agents while personally assisting with the short sale package.
If you need some advice regarding your short sale in the greater Atlanta area, feel free to call me at 770-935-4045.
As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.