FAQ, money savings facts & wealth preservation tips on the topic of short sales
MONARCH BEACH, Oct 29, 2008 / Michael Jairdullo via deVre' International, Laguna Country Real Estate
Quick Links
- What is a short sale?
- What do I need in order to qualify for a short sale?
- Why do I hear horror stories from friends, co-workers and family members?
- Why do they have an inflated number?
- What is a BPO?
- Do you now see why a BPO value could be inflated or possibly deflated?
- What is a short sale "package"?
- Credit-wise, what is the difference between a Foreclosure and a Short Sale?
- Would my lender really rather do a short sale then a foreclosure?
What is a short sale?
Answer: In a nutshell, a short sale is selling the home for less than what is owed on it, commonly at fair market value. Or, what the lender has calculated to be fair market when factoring in possible future losses.
Fact: It doesn’t matter how much or how little you own on the property. Your lender will entertain a short sale package when it is compiled correctly and directed to the correct loss mitigation department within the lenders financial institution.
What do I need in order to qualify for a short sale?
Answer: The only thing that is required to commence negotiations on a short sale is a hardship. Some examples of a hardship are a growing family, job loss, unexpected debt, reduced income, death in the family, etc. Regardless of the hardship, its presentation and compilation is just as critical a path.
Fact: Handling a “short-pay” property is a different process that requires specialized knowledge. The Orange County Register and The Los Angeles Times have repeatedly reported that the surest way to have your lender accept a short-sale request is by having it presented by someone who specializes in short sales and workout solutions.
Why do I hear horror stories from friends, co-workers and family members?
Fact: There is a laundry list of factors, equations and variables that come up throughout a short sale process. One of the most common road blocks, other than the 1st & 2nd mortgagors not agreeing on a suitable net, are when your lender has obtained an inflated or unrealistic opinion of value.
Why do they have an inflated number?
Answer: More than likely the BPO wasn’t completed properly.
Fact: The most important and expeditious task that can be done to refute that road block is to insist that the negotiating lender have the BPO reissued or reordered. You can have this done a couple of ways. By submitting to your lenders negotiator or asset manager comparable sales, listings and pending sales and accompanying the numbers with a clear, decisive explanation.
What is a BPO?
Answer: BPO is an acronym for Broker Price Opinion. A local agent or broker that will obtain photos of the property and forwards them along to the respective lender who hired that agent for the job. Accompanying those photos are comparables of the recent activity within the area. With this information, your lender establishes a ‘fair market value’.
Fact: Lenders utilize the BPO over the full blown appraisal because it is more cost effective. Many lenders won’t require that the subject property be entered by the hired BPO agent; only require that the agent drive-by the property and take photos of the street name and address to validate that they were outside the property. The average price for a full interior BPO is approx $90, paid to the agent upon completion. The average price for a drive by BPO is $60, paid to the agent. The ratio of full interior ordered to exterior is 1:4.
What is a short sake "package"?
Answer: Most coming entities in the short sale package are as follows along with a brief description:
- Hardship Letter - e.g. “I, trustor, cannot make my mortgage payments because…
- Two most current checking account bank statements
- Two most current paystubs – If you are self employed, they’ll need a letter substantiating that or, if you unemployed, there will need to be a letter written stating this.
- Two most current tax returns (1040)
- Monthly Income & Expense Statement – You’ll want to show your income against your expenses, most commonly showing the homeowners current insolvency.
Fact: If you purchased or refinanced your home starting at the end of 2003 through 2006, you now owe more on the property than it is worth.
Credit-wise, what is the difference between a Foreclosure and a Short Sale?
Answer: A foreclosure will present you with seven to ten years of consumer credit problems and a short sale will allow you the opportunity to be back into a position to purchase in as early as twelve months or one calendar year.
Fact: Using the most conservative approach, you can allow yourself the opportunity to be back in the real estate market 85% sooner when a Short Sale is executed successfully as opposed to waiving the white flag and allowing the home to fall into foreclosure.
Would my lender really rather do a short sale then foreclose?
Answer: "Yes!"
Fact: On average, a single foreclosure costs the United States economy $224,000.
