Maine Short Sale Hullabaloo!

Short sales are a fact of life in the current Maine real estate market as they are in most of the country.  While our state has not seen the market extremes that some areas of the country have experienced, we still do have homeowners in many parts of the state who need to sell their homes, but owe more on their home than it is currently worth.

The process of short sales has been around for a while, but was not widely used or needed prior to the past couple of years.  Some homeowners need to relocate for a job, family, or health reasons and now find that their home is no longer worth what they paid, others are no longer able to make their mortgage payments and need to be able to move on and avoid a foreclosure.

The advent of growing short sales has created its own market and “experts” seem to be popping up offering their services and advice taking a difficult situation for homeowners and making it even more confusing.  Personally, I am always leery of the word “expert.”  I believe there is always a bigger fish and even self-proclaimed “experts” can learn a thing or two.

Recently, I have read blog posts by Realtors® bashing each other over their chosen manner of handling short sales.  Some agents choose to handle all aspects of the short sale negotiation themselves and others choose to use an attorney or third-party that specializes in these sales.  While I know that some of this hullabaloo is due to observing a handful of agents present themselves as “experts” when in reality they have just taken a 3 hour course on the topic, I sense that some of the bashing is just agent marketing and I find that disturbing as well.

The rules for short sales change constantly and there is room for many different approaches to the process.  With that said, there is no room for tolerance of agents who truly do not know what they are doing, representing themselves as “experts.”

So what is a homeowner to do when they need to find an agent to handle the short sale of their home?  My answer to this is simple…ask questions.  Lots of them.  Whether the agent you are interviewing has handled a handful of short sale transactions or hundreds, they should be knowledgeable about the process.  They also, should NOT be making wild promises.  A successful short sale comes about through the dedication of the agent and the cooperation of the home seller.  It is not an easy process, but one that can help you to move on with your life.  Successful short sales require attention to detail, knowledge of the bank’s particular process, good communication, and persistence.

What Is A Short Sale?

Is a short sale right for me?
Where do I start?

A short sale occurs when a home seller owes more on their mortgage than the home is worth in the current market.  The sale needs to be approved by the seller’s lender as they will be accepting an amount that is “short” of the total loan balance.

The decision to allow a short sale or not is entirely up to the lender, however, recent guidelines from HAFA (the Home Affordable Foreclosure Alternatives program) that took effect April 5, 2010 may help some homeowners facing a short sale.

This program provides lenders and sellers incentives for completing the sale (including a $3000 moving allowance for the seller.)  However, we are now learning that this program does not include FHA loans (FHA has its own guidelines to help,) or loans affiliated with Fannie Mae or Freddie Mac at the moment.   More lenders are getting on board with the HAFA program as it continues.

Due to economic conditions, the number of short sales across the country has risen dramatically.  Since a short sale generally costs the lender less than a foreclosure, it can be a way for the lender to reduce it’s losses.

First – DO NOT move out of your home! With VERY few exceptions, you must be living in your home to qualify under the HAFA program.

Second – DO NOT pay money to a business up front to “help” you with a short sale or to avoid foreclosure. Due to cases of fraud and abuse, the state of Maine has stepped in and now requires Loss Mitigation companies to be licensed by the state.  There should not be up front fees involved for the seller of a property.  Most loss mitigation fees are actually paid at closing table by the buyer of the property and are negotiated in to the contract at the time a purchase and sale agreement is negotiated.

To qualify for a short sale, a seller must show some sort of “hardship” indicating why they are unable to pay the balance.  This can include job loss, increased expenses due to an illness or death, increased expenses due to an adjustable rate mortgage, or an unforeseen loss of equity due to economic conditions.  Short sales are not easy, but an experienced and competent realtor should be familiar with the process, have the necessary forms, and have the tenacity to consistently follow up with the lender to facilitate the process.

Sellers facing a short sale need to be committed to completing the process and willing to provide the paperwork and documents that will invariably be requested by their lender.  While sometimes frustrating, a short sale is one tool available to sellers that can be used successfully to get out of a sticky situation and move on with their own economic recovery.

If you need or want to sell your home and believe you may be in a short sale situation, please feel free to call me at 207-240-2250.  I would be happy to discuss your situation and see if we can work together to get your home sold and allow you to move on.

How Will A Short Sale Effect My Credit?

The amount of a hit that your credit score will take due to short sale can vary wildly depending on many factors (your original score, other credit card late payments, late mortgage payments, if the lender reports the loss, etc,) but experts seem to agree that it will have less impact than a foreclosure or deed-in-lieu foreclosure.  A foreclosure can drop your credit score by several hundred points, whereas a short sale will show up as a “pre-foreclosure in redemption” and will generally reduce your score 75-175 points, but again, the exact amount of impact can be almost impossible to determine in advance.

The credit score impact alone is not the main distinguishing factor between a short sale and a foreclosure.  In a properly negotiated short sale, the difference between the amount owed on your mortgage and the amount the bank receives at closing is released, meaning the bank cannot come after you later for the deficiency.  During a foreclosure, the process itself adds thousands and sometimes 10’s of thousands of dollars in fees to the balance owed.  After the bank takes posession of the home and eventually sells it, they will come after you for the deficiency amount (the difference between the amount owed – including all fees and penalties- and the amount they received from the sale.)  The number of years you will have to wait before you can qualify for certain types of mortgages is also much longer with a foreclosure than it is with a short sale.

If a loan modification is not possible and feel you can no longer keep your home, a short sale may be the best remedy for you.  Every situation is different.  If you are unsure of your next step, please call me (207-240-2250) to discuss your particular situation.