The Obama administration, which has struggled to implement effective programs to help homeowners in trouble, has introduced a plan for homeowners who can’t be helped by a loan modification or refinance. The program will pay homeowners $1,500 to do a short sale rather than let their homes go into the foreclosure; it also includes a $1,000 incentive for lenders to approve the sale.
The program is set to begin on April 5, though the administration is still working out the details.
An article in the New York Times the other day well articulated the benefits that a short sale offers (compared to foreclosure which, for most distressed Phoenix homeowners, is the alternative):
- For the homeowner: A Phoenix short sale is typically less damaging to your credit than a foreclosure. And, short sales completed under the program will include a deficiency release — meaning that the lender can’t come back later and sue the homeowner for the unpaid mortgage balance.
- For neighborhoods: “As many as half of all foreclosed properties are ransacked by either the former owners or vandals.” A short sale might help neighborhoods avoid that outcome.
- For lenders: In part because they avoid the high legal costs (tens of thousands of dollars) associated with Phoenix foreclosure, and in part because short sales are often discounted less than foreclosures, lenders may well get more money from a short sale.
I still do a lot of work selling Scottsdale and Phoenix REO properties (homes that have been foreclosed on) but in the last few months I’ve been helping a lot of homeowners short sell their Phoenix and Scottsdale homes, too. So by my experience, at least, Phoenix short sales is a growing trend.
Wondering how the Phoenix short sale process works? Here’s a rundown:
Step 1: Write a “hardship” letter and gather supporting documents to submit to your lender to request a short sale. A hardship letter explains why you can no longer afford to make your mortgage payments and outlines the steps you’ve taken to work out a modification or refinance (and why they failed). If you can make your mortgage payments but you have to relocate (to another state for work, for example), owe more than the house is worth, and don’t have the funds to make up the difference, explain that situation.
I’ve blogged a lot about strategic mortgage defaults, but it’s easy to see why lenders don’t want to approve a short sale unless the homeowner can prove an inability to pay the mortgage or absolutely has to move and can’t pony up cash for the difference between what he owes and what the house is worth. Lenders will use your hardship letter and supporting documentation to ensure that you’re not just trying to skip out on a bad investment.
Step 2: List your home for sale. Much of the sale part of the short sale works just like a traditional sale; I list your home on the MLS, put out a yard sign, market the home to my buyer database, hold open houses, etc.
Step 3: Submit the offer to the lender. Once we receive an offer on your home, we’ll submit it with a range of financial documents that your lender asks for (W2s, bank statements, expense sheets, etc.).
Step 4: The lender will send a real estate agent to do what’s called a BPO, or broker’s price opinion. Basically, the BPO gives the lender an idea of the fair market value for your home. If your offer is too far below the BPO value, the lender will likely reject the short sale. If the lender rejects an initial offer, we can always go back to the prospective buy with a counteroffer (or market the home more to get a higher offer).
Step 5: Once the lender accepts the short sale, close of escrow is scheduled, typically within 30 days.
I’d be glad to help with your Phoenix or Scottsdale short sale — it can be a great alternative to foreclosure. Give me a call and we’ll go over the details.
- Phoenix Short Sales
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