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RISMEDIA, June 29, 2011—Short sales aren’t what they used to be. Gone is the long and complex process that often confused and frustrated both buyers and sellers. Today, mortgage lenders—along with the federal government—have streamlined short sales to make them more efficient and successful than ever before. Here are several things real estate professionals need to know as they pursue this significant opportunity.

First, what is a “short sale?” It’s a process in which the mortgage lender allows a property to be sold for less than the remaining principal balance on the loan. Short sales can be the answer for home-owners who cannot afford their mortgage payments or no longer wish to remain in the home. With the government’s Home Affordable Foreclosure Alternatives (HAFA) Program, the borrower even receives $3,000 in relocation assistance. In fact, many lenders offer similar incentives with their own short sale programs. Buyers can also benefit from short sales because home prices may be substantially discounted.

So, what should an agent know when evaluating a potential short sale? Start down the right path by answering these questions:
1. Who owns the lien according to the servicer?
2. Do the servicer/investor and agent agree on the property’s value?
3. What documents are required?
4. Has the seller signed a short sale agreement?
5. What are the major challenges and impact on the client?

Let’s address the last one first. Agents may face a variety of challenges, including: Are there any subordinate lien holders? What is the timeline for foreclosure? Can financing be arranged in time?

And what happens if the servicer/investor and agent don’t agree on value? As early on in the process as possible, request the comparable information used by the bank and/or investor to determine their value. Once received, use your knowledge of the local real estate market to help tell the “story” on why the comparables used by the servicer/investor were used incorrectly, and why your comparables are better suited for valuing the property. The better your story, the more likely you are to affect the valuation being used by the servicer/investor.

The seller has several challenges as well. For example, the credit report will state “paid in full for less than full balance.” So, following the sale, the seller may need to repair his or her credit before being able to qualify for a new mortgage. And there may be tax implications.

With these challenges in mind, what documentation is required for a short sale? The transaction always requires a Letter of Authorization (from the customer authorizing the agent to speak on their account), Listing Agreement, Purchase Contract, Estimated/Final HUD 1 Settlement Statement and 2nd Lien Approval Letter. You may also need a 2nd lien payoff, hardship documentation and client financial information, such as pay stubs, tax returns and bank statements.

What if it’s a HAFA short sale? Once the borrower fully qualifies for the program, the lender will proactively engage in the listing process. Once an offer is approved, closing generally takes 30-45 days. And the borrower receives relocation assistance once the short sale is complete.

Mortgage lenders across America are eager to avoid foreclosures, and short sales can be an attractive option for clients and real estate professionals alike. Ask the right questions and you’ll be well on your way to a successful short sale.

Bill Ervin is the National Sales Director, Real Estate Relationships for CitiMortage, Inc.

For more information please visit www.citimortgage.com.


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