Short sales and foreclosures, how to short sale your own home.

The first step, and most important is to get the property clean. Make any repairs you can without sinking more money into the property. A good place to look for materials is your local Habitat for Humanity. If you have the luxury of not living in the property while trying to sell it, give it a fresh coat of neutral paint. Remember, when staging a property, you want it to be clean. Any potential buyer wants to “envision” it as their own. Get rid of clutter. Even if the property needs repairs, a clean house is better than a dirty dilapidated wreck. Take good photos for the listing, or make sure your Realtor does. This is important! It saves buyers a lot of time!

I held an active real estate license for 8 years, the last 2 years, before my license went into escrow, I worked primarily with foreclosures and short-sales.

If you’re trying to move out of a property that has lost value, or you’re just upside down on your mortgage like I was, you may want to consider a short-sale. Keep in mind, when I did mine, I was not practicing real estate. I had to get a Realtor.

Short-selling your own property is not difficult and you don’t need to be a realtor to do it.

If you are living in a property that you need to short-sale, but have to secure another place to live before your credit is affected (short-sales do affect your credit but not as badly as a foreclosure). Your debt will appear on your credit report as “paid per terms” or some other similar verbiage, not as a foreclosure. I suggest talking to a loan officer (do not talk to your current mortgage holder about loans!!) about buying another home. Have a loan officer give you an idea of what you can be approved for taking into consideration your current debt, down payment information, taxes, insurance, and interest rates.

Make sure you can afford a new home, don’t drowned yourself in more debt, you don’t want to repeat this scenario in a few years, most likely you will need to consider downsizing. To many Americans live outside their means which has been a huge factor in our current economic demise! The key here however, is securing another loan on top of your current one before your credit takes a hit from a short sale. The best option in this situation is to consider is a 203k loan (see my other HUBs about this type of loan), a 203k loan is a rehab loan and although a bit more time consuming, you can get a really good deal if you do your research. I also personally prefer a 30 year fixed rate, but a 15 year fixed rate is even better, in my opinion.

Back to the short-sale….

After you have the property clean and ready to be listed, contact a local Realtor. You don’t need to explain to much other than you are trying to short-sale the property. Have the Realtor you choose list the property “as is” so a potential buyer knows that repairs will not be made at your expense, and make sure the listing also says “subject to short-sale approval”. If your town required a POS (point of sale inspection) contact the city to see about getting that done. You need to list the property at CURRENT market value, even if this is way under what you owe. You need current market value or you will not get offers. Even if you list it 20k under what you owe.

Get that property listed!

When the economy first tanked, people thought you needed an experienced Realtor to handle a short-sale, I would agree that was the case but is not anymore. You can do your own negotiations with a bank.

Now…it’s a waiting game. You need to get an offer. You can assist your Realtor by listing the sale information on your property via local avenues like Craigslist, or putting fliers up at libraries or other public places if you and your Realtor are comfortable with that. My Realtor was lucky, not only was my license in escrow, but he got a sale from my 203k loan, as well as commission from me bringing the seller to him on my short-sale. Lucky guy! It is important to “work with” your Realtor, not against them. Remember, they are there to help and represent you.

Be patient. Short-sells are all about timing and patience.

Once you have an offer to present to your bank, the Realtor will contact you to approve or reject the offer. You do have to approve it first, even though this does not guarantee the bank will release you from the debt and approve the short-sale. Unless the offer is just ludicrous, approve it.

Next contact your bank and specifically ask for the “loss mitigation” department. Make sure you get a contact in this department even if it is a manager because you will be talking to them over the next few months, and you need to stay on top of them! Most loss mitigation departments are swamped with work, so unfortunately for them, you need to be a slight thorn in their side. Also, provide this contact information to your Realtor, they will need to submit your approved offer and communicate as well with the bank. I emailed weekly to make sure my bank was doing what they needed to do. You don’t have to be a pest, but don’t let weeks go by without an update on the progress.

The representative from loss mitigation is going to send you a short-sale package and once they receive that filled out, they will do a BPO (broker price opinion on your property), they do this to make sure your offer is in-line or close to current market value.

The short-sale pack will also include a request of why you can’t afford the property, also referred to as a HARDSHIP letter. They will request other various financial documents. It will be helpful to google: how to write a HARDSHIP letter to include with your packet. In my situation, my bank would not even consider a short-sale unless I was 3 months behind on my mortgage payments, so I quit paying them, I also lived in a condo, and quit paying the condo dues as well (I put these in a separate account in case I needed to bring money to closing, which I did, only $500.00). I was lucky because my first offer was accepted by my bank, and both liens were going to be released. Occasionally the bank will try to recap some of their loss before accepting your offer. Again, in my situation, I had a first and second mortgage, because at the time when the economy was doing well and I purchased the Condo, I did an 80/20 loan to avoid PMI. Do not be afraid to negotiate with your bank. Let me say that again… do not be afraid to negotiate with your bank. I agreed to a $1500 payback on my second mortgage and a $5000.00 on the first, all at 0% interest with $45.00 payments a month. They originally wanted me to pay $2500.00 on the first, and I told them I could do $1500.00. Unfortunately the $5000.00 could not be negotiated because this was a Fannie Mae loan. Granted it will take awhile to pay back, but $90 a month vs. what I was paying in my mortgage was totally worth it, not to mention the 20k+ the bank forgave me for.

Sometimes you simply can’t get an offer on a home you are trying to short-sale. As a last resort, you could tell the bank that you’d like a deed in lieu of foreclosure, this is for extreme situations, in which point you hand the property back to them, rather than have them fight you in court to foreclose. It’s less damaging to your credit, and your bank still has to agree to accept a deed in lieu. If you cannot secure another loan before going through the above scenarios, then you’ll probably be looking at renting for 5-7 years. There is nothing wrong with that, but that wouldn't be my first choice.

Remember…when short-selling a property…it’s not as terrible as it seems. It’s possible, you can do it. And the pro’s for doing so can greatly outnumber con's.