Short Sale? First steps?? Experiences??

[firstofnine]

My mother in law has been battling to keep her home (or at least come out of it with a small amount of money to roll into another home) for almost 2 years now. She's been laid off 3 times in that time frame, and has managed to keep current on her payments. She has had to take a large pay cut in order to obtain a position at all, and has been dipping into her retirement funds (she's over 60) to do so. She's been irresponsible with her money in the past and is definitely trying to learn from her mistakes with this.

 

She's had the home on the market for the past 6 months, but has been seeing little traffic through it. Her Realtor, who we definitely trust as there is a longstanding business relationship, advised her yesterday that a home in her neighborhood (one that is definitely considered a comp) just dropped their price to a level that would do nothing more than pay off my mother in law's mortgage, were she able to get that price. So basically she is now in a position where her Realtor is advising her that her best option is a short sale as she is "chasing a down market". I was afraid that it would come to this, but was hoping it wouldn't happen. Now that it has, I'm not sure what her best first steps to get this going in a timely manner with a minimal impact on her credit will be. Neither my DH & I, nor DH's brother are in a position to assist her financially, though we are completely behind her decisions on this and are willing to provide whatever non-financial support we possibly can. I am hoping someone who has been in a similar situation would be willing to share what they did, what they would do differently if they could go back and why.

 

thanks in advance for sharing.

[arameth]

Hi,

 

I've gone through the short sale process twice...here are some suggestions:

 

1. Get a RE Agent that is experienced in short sales. Not to say that you or a regular RE Agent cannot get a short sale done, but I found part of the key to success is getting someone who know's how things work. Also, they have contacts at the various banks who can make decisions quickly.

 

2. If your mother in law is not late in payments, the bank is not likely to do the short sale. Think about it: Why would they settle for less if you keep making the payments?

 

3. Tax liability: there were some changes in the law in 2008 that may exclude your mother in law from paying tax on the difference in amout owed vs. what the eventual proceeds of the short sale are. I'd advise reading up on this and consulting a tax professional to verify.

 

4. You may want to talk to investors - some will purchase the house, and allow your mother in law to stay there and rent. Depends on whether she really wants to stay. Some will even arrange a buyback or lease/purchase option.

 

5. Credit impact: I was able to get one loan to show as payed as agreeed, but the other shows settled for less. This is all negotiable. I was hit for about 80 points on my scores...and they've already started climbing up. In hindsight, short sale was far better than foreclosure or deed in leui of foreclosure.

 

6. Deficiency: Make sure that any agreement that is written up agrees that the lender will not seek a deficiency judgement after the short sale.

 

#1 is the most important...if you or an inexperienced RE agent try to get a short sale approved, be forewarned that inexperience may delay the approval and eventual sale, or even cause the bank to refuse to negotiate. I personally never used RE Agents in the past to buy/sell property, but in the matter of short sales, they are literally worth their weight in gold (even at today's prices...).

 

I hope this sheds some light on the situation....feel free to ask any other questions and maybe I can help.