Many homeowners here in Phoenix, and the surrounding Maricopa and Pinal county areas, are still in danger of foreclosing.

This is a tough question to ask (and to be asked, for sure), but it is a question I ask these days of homeowners when they contact me inquiring about selling their home.  There are many people here in the Valley that are facing ARMs that are ready to adjust, or have already adjusted, or have had any other life happenings that would bring them to the need (not necessarily the want) to sell their homes…quickly…

As the real estate market has changed here in the Chandler, Gilbert, Mesa, Queen Creek, and other Phoenix areas (and across the U.S.), home prices have tumbled (to put it lightly), and many homeowners have found themselves upside down in their homes, otherwise known as owing more than the home is worth.

Homeowners who need to sell, and owe more than the home is worth, need to sell their home short of what is owed, also referred to as a short sale.

Click here for a basic overview of a short sale.

If you have come to the decision that a short sale is your only course of action, one of the first questions that may come to your mind is this: “How do I go about selling my home short, and what can I expect over the next several months?”

The first thing you should do:

Call 888-995-HOPE (the Homeownership Preservation Foundation), schedule a counseling appointment and GO SEE THEM!  The Homeownership Preservation Foundation was founded to help you keep your home by working out an arrangement with your lender(s). Visit them online: http://www.995hope.org/   If you really want to stay in your home, this should be your first step.

***Click here for an overview of new housing legislation, enacted to help you stay in your home***

If there just isn’t any possible way to keep your home, then you may want to proceed to the next steps:

***Remember each individual’s situation is different. There are many different circumstances, from who one’s lender is, to one’s annual income and other life matters.  Please use the following only as an informational piece.  Consult your Realtor, accountant, and/or lawyer for specific information for your specific needs!***

Get a copy of your credit report at www.annualcreditreport.com.  This is a free service (from a government mandated site) and will not only let you know where you stand financially, but could also be a piece of the short sale “package” that your Realtor may send to your lender.

Get your records ready and make copies of all of your financial statements. This will also be a part of your short sale “package”.

Next, contact a Realtor in your area and schedule an appointment to talk about putting your home on the market.  Once you have decided on a Realtor, and decided on an initial list price, it will be time to put your home on the market.

Here in Phoenix it’s extremely difficult (impossible, really) to predict when and at what price a home will ultimately sell.  Each market (the East Valley, for example) is different, and there are many smaller markets (Chandler, Gilbert, Mesa, Queen Creek, and the subdivisions within those cities) within those markets.  You will need to have patience and need to keep up with the current market in your area to be sure you are in the correct pricing “ballpark”. This will allow you to get the most showings possible, with the end result being an offer presented.  When offers finally come in, be prepared for some offers to be quite a bit lower than your asking price.  This doesn’t always happen, but it is very possible.  These “lowball” offers are typically fishing expeditions (someone looking for a great deal).  Consult with your Realtor on how to proceed, just keep in mind that if you’re receiving offers, you’re most likely in the correct pricing area.

As soon as you’ve decided on an offer, your agent will send in the short sale package to your lender(s).  At that point you will play the waiting game.  Remember, your lender, and the associate assigned to your file (in the department sometimes referred to as loss mitigation), are also working hundreds, if not thousands of files just like yours.  Patience is the key here! Keep in mind that your Realtor will continue to “work” the file and keep in contact with your lender as much as possible.  Be ready to wait up to two months or more to receive a response from your lender on the offer you’ve submitted to them.

Every lender is different, and there are a countless number of circumstances that may surround your particular situation.  Not every lender will agree to a short sale, and typically there is no way of finding out if they will or not until you get to this point.

If your lender has agreed to the terms of the offer you’ve presented to them, they will send you an agreement letter and you will then be able to proceed with the sale of home, assuming the buyer that has put in the offer is still waiting to buy the home.  In many short sale cases here in Maricopa and Pinal counties, the first potential buyers have moved on because they are just unwilling to wait so long for a response. Thankfully they DID put an offer in, and ultimately helped you to receive an agreement letter from your lender!  At that point, you’ll have to continue marketing the home until you find a buyer at the lender’s agreed upon price (or maybe you already have backup offers).  Then, if all goes well, within 30-45 days or so (after having a contract) you will have accomplished your goal, and sold your home, rather than letting it foreclose.  You can now get on with life.

**NOTE**  There may be tax and or legal ramifications in regards to selling your home short.  It is highly recommended that you consult an accountant and/or attorney before deciding on a course of action.

If you have more questions about short sales in Chandler, Gilbert, Mesa, Phoenix, Queen Creek  or the surrounding Maricopa or Pinal county areas, please feel free to contact me, my phone number is 480-529-6329.  My email address is Nathan@ezlistaz.com.

Here is a brief excerpt from a recent short sale seminar given by Patrick Ritchie:

What is a short sale?

A short sale, also known as a short pay or short payoff, allows a homeowner to sell their property for less than the amount owed to the bank.  When the market value of the property is less than the amount owed the owner is considered upside down.  The proceeds from the sale are used to pay off the outstanding amount of the mortgage although the proceeds will be “short” the amount actually owed on the mortgage.  It allows a homeowner the opportunity to avoid foreclosure.  Ultimately it may put their credit standing in a better position than if an actual foreclosure were to take place.  The entire process hinges on the approval of the lender to accept less than the amount due.

Generally the homeowner circumstances are:

Loss of job or reduction of income

Adjustable rate mortgages that are increasing

Death of the homeowner, spouse or family member

Illness or disability of homeowner or family member

Divorce or separation

Civil or criminal litigation

Forced job relocation by employer

Catastrophe of nature such as earthquake, hurricane, tornado, etc…

Why would a lender accept less than what is owed?

Lenders do not make money on foreclosures.  Lenders typically can lose $50,000 or more on one foreclosure.

What are the financial and credit considerations for a short sale?

Credit scores are going to suffer; there is no way of getting around that.

Industry ‘experts’ have said a foreclosure will drop a credit score 250 points, while a short sale will drop the score only 100 or less.  This cannot truly be gauged unless it is based on a perfect score.  Someone who is having difficulty making their mortgage payment most likely has derogatory credit of some sort already.

The loan will show on the credit report as ‘paid’, however, in most cases it will also note ‘settled for less than amount owed’.

Depending on how far behind on payments a borrower gets, it may also reflect as a ‘Pre-Foreclosure’ on the credit report.

The borrower may receive a 1099.  If the current loan amount is $250,000 and after all costs the proceeds to the lender equal $225,000 then the forgiven debt is $25,000.  The borrower may receive a 1099 for the amount of forgiven debt.

There are of course countless possible circumstances for each individual, so a short sale may or may not be the answer for you.  If you have questions, please post a comment, and I will answer as quickly as possible.  For more immediate assistance on selling your home short, please contact Nathan@ezlistaz.com or call 480-529-6329.