As you can see from the enclosed chart, short sale listings account for 53% of all active Cape Coral listings, 55% of Lehigh Acres listings, 35% of Fort Myers listings, and 40% of Lee County listings. While foreclosures account for more of the completed sales in Lee County, there are far less of them listed and they tend to go very fast.  Short sales on the other hand tend to take much longer, and their sale is not certain at all.  So we want to inform people of some of the things they should know about short sales. 

Chart of Homes for Sale-All listings Vs Short Sales
Chart of Homes for Sale-All listings Vs Short Sales

A trend we see developing is many banks are requiring sellers to participate in the loss and pay money at closing, or agree to a promissory note that the bank will collect on.  Sellers should be very cautious not to list the property too low or the bank will reject the offer outright if it’s not within reasonable value, and they are coming back on the sellers regardless of whether it’s a homesteaded property or investment property.  Banks may not file a 1099 to the IRS on a homesteaded property, but they are in many cases on investment properties.  The forgiven debt has always been treated as income to the IRS, so if you take a loss on an investment property, prepare to pay taxes on the forgiven debt regardless of your ability to repay.  

This is another reason why selecting an agent with experience in short sales is critical.  Not only must the agent understand what the banks want to see in the total package, they must also understand what the banks are doing today and their implications to their clients. Agents are not tax advisors; however agents can pass along valuable experience before you go through such an ordeal. 

Buyers are very wary of buying short sales, as are buyer agents.  Buyer agents typically only show listed short sale properties when they know the listing agent has a firm grasp on All the details needed to get the short sale through. 

A listing agent should also make sure there is a title search done.  If you miss a potential lien on property and do not list it on the estimated net sheet the bank requires, it will not be part of the accepted short sale and the seller or buyer must pay the difference at closing.  It definitely pays to know all the back fees and penalties from HOA’s, utility companies, etc. upfront versus finding out later on and having the short sale deal blowup at closing. 

You’ll usually want an estoppel letter from the homeowners association showing all back fees, because in a short sale they will need to be paid off.  In a foreclosure the HOA may only be entitled to recover 6 months of back fees.  This is one reason HOA’s should be more cooperative in providing this data. Many homeowners associations don’t realize their management companies are charging large sums simply to provide an official amount the owner may owe. 

We also recommend sellers pay their HOA fee even if they are delinquent on their mortgage.  Time is valuable in a short sale, and the HOA could actually file foreclosure papers much sooner than the bank might.  When the clock is up, the short sale is dead.  I can’t tell you how many homes we’ve seen listed as a foreclosure after the banks supposedly agreed to a short sale. 

The bank(s) should only see one accepted offer from a seller.  If a bank sees multiple offers it gums up the works, and sometimes leads the bank to believe it is a Hot property and should sell for more.  Nevertheless, it increases the time it takes the bank to respond as it is much more work, and we should do nothing to increase that time.  Furthermore, there is a legal risk by accepting more than one offer.  The offer is between buyer and seller.  The bank cannot agree to a short sale unless seller agrees with a buyer.  The bank can only tell you what they’ll do if you have a sale.  A seller could have legal problems if more than one buyer believes they have a valid contract with the seller. 

We also don’t believe in sending in fake contracts to get the ball rolling with the bank.  When banks discover this tactic they are less likely to work with you.  Additionally, there is no such thing as an accepted short sale price. If you lose a deal, typically you have to start all over and the terms usually change. 

There is a test program that is an exception to this rule on HUD properties, but that price is set upfront and has nothing to do with previously accepted contracts.  There are many other things a buyer and seller should know.  To view a video segment on HOA’s and management companies, visit segment 2 of last week’s Future of Real Estate Show.  http://bit.ly/8pfMMf  or you can visit http://www.youtube.com/brettellisfl for many real estate related videos.

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