Though there are fewer and fewer short sales, they still exist. What is a short sale? It is when the current market value of a property is less than the amount owed on it. (That difference is called a short.) In common vernacular, people refer to these properties as being “under water.”
It is not a fun position to be in. Unless you have sufficient funds to cover the short, you are stuck in that house. And what if you can’t afford the payments? What then?
Rather than face foreclosure it is better to undertake a short sale. The first thing you must do is contact the bank. I know, I know, you have been dodging their calls for months now, but this time you are in the driver’s seat.
Each bank is different. Some will want you to begin the short sale process immediately, others will want you to list your house and submit an offer before commencement.
Either way, it is time to select an agent. Do your research, and find someone with good attention to detail and patience. This process is more lengthy and less profitable for the agent than a conventional sale. Some agents love the challenge, others shy away from the frustration.
You will need to gather a lot of documentation. This includes pay stubs, bank statements, asset verification … you know, the regular stuff you should be able to lay your hands on in a second and probably can’t.
There are two parts to the approval by the bank to allow the process to move forward. The first is you must prove a hardship. You cannot short sell a house just because you are tired of it (unless you can pay the short). Hardships could include, but are not limited to, death of a spouse, loss of job, transfer of job, etc. You will be asked to write a letter explaining your hardship in detail.
Once the bank allows your hardship, you will need to get your home sold. Once you have a willing buyer you submit the signed contract to the bank. They might accept the value of the sales contract you submit, or they may counter with a higher price.
After the approvals process the transaction follows along very much like a conventional sale.
What will happen to the short? When the short sales began happening as the economy took a downturn and the housing market fell, sellers were required to report the debt forgiveness (the short) as income. However, the government stepped in and created legislation so that most people will not have to either repay or pay income tax on that amount.
Exceptions do apply, and I am not a tax professional, so make sure you talk with your accountant or attorney at some point and make sure you will be in the clear.
If you have questions regarding the short sale process, talk to a local real estate professional. Whatever you do, don’t stick your head in the sand and pretend it isn’t happening. Tempting, I know, but it will only be worse in the long run.
Let’s switch gears and look at today’s real estate market. On the last Friday of February 2015 there were 100 properties listed for sale. Ten of these are over the million dollar price point, three in the 900K range, five in the 899Ks, nine in 700K, 10 in 600K, nine in 500K, 29 in 400K, 15 in 300K, five in 200K and two in 100K. Homes are selling quickly in the lower sales range, less so in the higher. Thirty-three homes changed hands this month. If you are thinking of selling yours, call your Realtor!
It’s a good life.
Nants Foley (CalBRE 01222234) is a Broker Associate with Flora Real Estate Group in Hollister, Contact her at 831.801.5110 or email nantsfoley@gmail.com.