In the last five years we have successfully handled thousands of short sales. We have dealt with just about every possible situation imaginable. In that time we have seen and heard just about everything imaginable regarding short sale myths and misconceptions.
With 2013 coming to an end, along with the tax forgiveness act, we thought it was a good time to go over some of the top 10 short sale myths we have heard this year. Remember no blog or website is a substitute for experienced legal counsel. If you have a question about your short sale or foreclosure defense options contact us today or seek an attorney in your local area for advice.
1. I am already in foreclosure, it’s too little too late. That is absolutely not accurate. You can start the short sale process regardless of where you are in the foreclosure process. With the help of a qualified foreclosure attorney there is hope all the way up until the foreclosure sale date.
2. I have a contract in with the bank, they won’t foreclose on me. Unfortunately that is not accurate. The short sale, or loss mitigation process, and the foreclosure process run concurrently and more often than not one does not affect the other. We frequently hear from clients saying “My real estate agent is going to stop the sale because we have a contract” and unfortunately that just isn’t accurate. The presence of a contract won’t stop the foreclosure process and a real estate agent cannot represent a homeowner in a court of law, only your foreclosure attorney can do that. For that reason it is always a good idea to be taking steps to push your short sale forward and to retain the assistance of an experienced attorney in your area.
3. Doing a short sale isn’t worth my time. Actually doing a short sale IS worth your time and it might even make your wallet a little fatter. Over the last few years there have been several programs offered by various lenders and investors that actually paid cash incentives to homeowners that completed the short sale process. The idea is that they would rather pay you to help sell the house than get stuck with it themselves. Further, a short sale is also going to have a lesser impact on your credit score and future loan possibilities.
4. The bank HAS to let me do a short sale. The reality is the the bank does not HAVE to approve anything or “let” you do anything they do not want to do themselves. There is no “law”, guideline or rule that says the bank MUST do anything. This is very important to keep in mind when you are going through the short sale process and your lender keeps requesting documents. Unfortunately all you can do is work with them to get the documents they require because in the end you truly are asking them to work with you.
5. I have a lien on my property or multiple mortgages, I can’t do a short sale. Well tax liens, HOA liens, mechanic liens and other encumbrances certainly don’t make the short sale process “easy” but they also do not prevent you from completing a short sale. In fact, you can get a short sale approved with the presence of several liens, the time and effort it takes to get it done will be entirely dependent on the foreclosure attorney you have assisting you with your short sale. A more experienced attorney will have the contacts and experience required to resolve those pesky junior liens and ensure success.
6. If I do a short sale the buyer is going to get a great deal. Actually your buyer still has to pay the fair market value for the home. It is a common misconception that short sale means “discount” when it is not the case at all. Your buyer will be required to prove that the price they are offering is the current fair market value. As you go through the short sale process your lender will determine the fair market value of the home and your buyer will be required to meet or at least come close to that value. In reality you want your buyer to pay as close to that fair market value as possible. The closer they are to the FMV the better your chance of a deficiency waiver and the less tax liability you will incur. An experienced Realtor® or foreclosure attorney will help you make sure you are getting the best buyer and best offer possible for your home.
7. My friend did X so I expect X. A day does not pass that we don’t hear about the neighbors, friends, relatives or that guy down that street that did a short sale. Regardless of what people tell you each and every loan and transaction is completely different than the next. You can have the same bank but different investor, you could have mortgage insurance you could even have everything the same on paper but you won’t have the same buyers. There are an innumerable amount of variables that can affect the ease of the transaction and the time it takes to get it done. Your best best is to ignore everything people tell you about their personal transaction and seek the advice of an attorney that has handled thousands of transactions not a handful.
8. I am just going to walk away because they can’t do anything anyway. Walking away might sound great when you are frustrated with the short sale process or just tired of waiting but it is never a good idea. If you walk away the lender will eventually take the home through a foreclosure action. When they get that judgment they will have the ability to use a number of different remedies to collect on that judgment. This could potentially include wage garnishment, liens on other property and much more. The credit damage alone is a good enough reason not to “walk away” and to seek an amicable resolution with your lender.
9. Short sales rarely get approved. Short sales are the most common loss mitigation method used by banks as a pre-foreclosure resolution. If your buyer is paying fair market value you can almost guarantee an approval assuming the rest of the transaction is fairly clear. If you have multiple liens and excessive HOA dues outstanding you can still get a short sale approved but it will take additional time and may even require you to pay down some of those liens.
10. I am doing a short sale I don’t need to pay things like my HOA and taxes now or keep the power on. The best advice we can give a client is to always keep your HOA current and to pay taxes before they become a lien. In the end you almost always end up paying those HOA dues anyway so you might as well avoid late fees and other excessive charges. Keeping the power and utilities on is your choice but it will always make the home easier to show to potential buyers and in humid clients it could mean the difference between a successful short sale and a destroyed home. It only takes a matter of days for mold to take over a home that does not have power in a humid environment.
If you are considering your short sale or foreclosure avoidance options seek the counsel of a qualified real estate attorney before jumping into anything. You can follow our blog for additional articles and tips that can lead you down the path to financial freedom. That wraps up our Top 10 Short Sale Myths of 2013!