The Kestner Team

Some SHORT SALE advice by Nina Kestner McIver

I have spent a lot of time this year counseling my investors on short sales, what it means, and the process involved. Therefore, I felt it beneficial to share this information with everyone in my data base.

First, the biggest piece of advice I can give you is DO NOT WAIT!!! Please don’t wait until you are two or three months behind on your payments. Don’t even wait until you are one month behind. You know how much you have in reserves. Therefore, if you don’t have enough to cover the mortgage payment if the tenant moves out, or enough to make needed repairs/tenant turn over expenses, then you’re in trouble and you need to act now.

The first step is to contact your real estate agent (if your property is in the Nashville area – CALL ME) to determine the marketability of your property. You need to know how long to expect the sale to take, and how much you can expect to net after the sale. If the net is a negative figure and you do not have those funds to bring to the table, you’re looking at a short sale.

Second, contact your lender and/or lenders to see if they have any options available to you. Some lenders are more consumer friendly than others – you won’t know until you contact them. There are several options that may be available to you: forbearance, loan modification, etc. There are several “foreclosure alternatives” available to home owners that may also be available to you if you are an investor – ask your lender.

A FREE opportunity is to contact HUD. They have FREE counselors available to discuss your situation and help you determine the best route for you. You can reach the website by clicking here.

If no work out options are available to you, then you may be able to do a “short sale”. A short sale means that the current market value of your property is less than the amount you owe on the mortgage. The sale of the property is contingent upon your lender’s approval and depending on the lender, a short sale can be a time consuming ordeal – yet another reason not to wait. Once you stop making payments, the foreclosure clock starts ticking. Once the property officially goes into foreclosure, we may still have time to try to sell it, but the closer it gets to auction, the less likely they are to cancel the auction. Also, when the property goes into foreclosure, attorney fees are added to the payoff amount which in turn reduces the net amount the bank gets. So, again, we need as much time as possible to sell the property.

Each lender has different qualifications for a short sale; however, the basics are the same.

You must be able to prove:

1. The property is worth less than you owe.

2. You have a hardship that makes it impossible or extremely impractical for you to keep the property. Perhaps you lost your job, perhaps you incurred large medical expenses, perhaps you have over-extended yourself on several properties and simply have no money. If you have funds available to either continue making the mortgage payments or make up the difference between what you owe and what the property sells for, you will not qualify for a short sale.

3. You must also provide the lender with a copy of typically your last two bank statements, your last two tax returns, your last two months pay stubs, etc.

I have yet to work with any lenders that approve a short sale up front. Therefore, we start by having you sign a Third Party Authorization document which allows the lender to discuss your loan with your real estate agent. The lender will NOT talk to anybody about options, loan balance, etc., without the Third Party Authorization. We inform the lender that we are placing the property on the market for sale and that it will probably be a short sale situation. Most lenders prefer that we list the property at market value first as they will want the agent to show that they at least tried to sell the property for as much as possible. If we don’t get any action, we drop the price until we get an offer. The offer is sent to you as the owner of the property for your signature and the offer is always contingent upon the lender’s approval. Upon your acceptance of the offer, we send the lender the contract, a market report, the listing agreement, and your hardship package. Many lenders will respond within 2 weeks, others may be longer. The lender may accept the offer as presented, or counter offer.

Another issue to remember is that under new laws, if a tenant is in place, the buyer of the property also purchases the lease agreement. That’s great for a multi-family property, but can be detrimental to a single family home. If your tenant’s lease does not expire for 9 months, that means your only option is to sell to an investor. However, as you may know, investors are having to put 25% or more down on a property and are only purchasing properties with large cash flow and returns. This equates to a LOW offer which h may be rejected by the lender. It’s very difficult to get the lender to understand this situation. Without a tenant, the property would sell to an owner occupant for a much higher amount and that’s the amount of the “value” that an appraiser will place on the property and in return the sales price the lender will be expecting. So, if you have a property that is in trouble, think seriously before renewing the tenant’s lease. You might instruct your property manager to only renew the lease on a month-to-month basis. This will allow you to receive rental income while trying to sell the property and at the same time eliminate the issue with only marketing to investors.

I hope this is information that will be of benefit to you!! If you have a property in the Greater Nashville area, I’m happy to discuss it’s circumstances and prepare a free market analysis for your review.

NINA KESTNER McIVER

CPM, ABR, CRS, GRI, Licensed Broker

The Kestner Team

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Coldwell Banker Barnes, Franklin, TN

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