Short Sales in Northern Nevada: What Is A Short Sale, Exactly?
First, here is the technical definition of a Northern Nevada Short Sale: A short sale occurs when a seller sells a property that has encumbrances, together with closing costs and commissions from the sale, for less than the seller owes to the lender(s).
Clear as mud?
Here’s a simplified definition: A short sale is when the seller sells the house for less than the seller owes to the bank, including the costs to sell the home.
Why would a Northern Nevada homeowner choose to do a short sale? A short sale can help homeowners avoid further mortgage collection activity or foreclosure.
In order to qualify for a Short Sale, it is very important that the prospective seller / homeowner be prepared to have a candid discussion with his or her real estate professional as to how the financial distress occurred. The REALTORÂ® will need to be able to validate the financial hardship on behalf of the seller in order to complete a successful short sale.
As a Certified Distressed Property Expert (CDPE) and a Short Sales & Foreclosure Resource (SFR) I have the skills, knowledge and experience to successfully negotiate Northern Nevada short sales. If you are considering listing your home as a short sale, it is important that you select a knowledgeable agent. Your future success as a short sale seller depends on it, and a foreclosure could hang in the balance and ultimately occur if your agent does not understand the process.
When I list short sales, I collect a great deal of documentation up front at the time of the listing to begin work on the short sale package I will ultimately submit to the lender(s) once I have an offer on your home.
This initial list of documents is just the listing documents, regardless of whether you are a short sale seller or not:
- Duties Owed By A Nevada Licensee and Consent To Act
- Exclusive Listing Agreement
- Sellers Real Property Disclosure Form
- Disclosure Regarding Homeowner’s Insurance Claims
- Mold, Fungal & Pet Disclosures & Waiver and Flood Disclosure
- MLS Residential Listing Input Form
- Residential Disclosure Guide Acknowledgment Page
If you are a Northern Nevada short sale seller, I will also want to gather these documents:
- Authorization to Release Information (this allows me to negotiate with the bank on your behalf)
- Financial Information Worksheet (documents your financial situation)
- Hardship Letter (explains why you are unable to pay the mortgage)
- Last 2 months checking account statements
- Last 2 paystubs for all borrowers
- Last 2 years tax returns including W-2s
- Last 2 months mortgage statements for all mortgages
The timeline to obtain short sale approval and close a short sale is dependent upon where the seller is in the Default Process. It is best if you know you need to short sell your home and you have a valid hardship that you begin the process before the Notice of Default is filed. Many banks are inundated with short sale applications, and the process can be lengthy and frustrating. The more time you can provide to your REALTORÂ® to complete the sale, the better off you will be.
Once an offer is submitted, the REALTORÂ® will assemble the short sale package including all the documentation above, along with a Competitive Market Analysis showing the prices of the most recent sales, along with a decline of value letter. Often, additional market statistics are also included. The package can very easily swell to 75-100 pages of documentation. It is important to remember that the sale of the home must be an “arms length transaction”.This means the property may not be sold to anyone the seller has a close personal or business relationship with including family, friends or neighbors.
Once the documentation is submitted to all lenders, the application is assigned to a negotiator who typically orders a BPO. A BPO is an acronym for Broker Price Opinion. A Broker Price Opinion is a real estate agent’s valuation of the property. For Northern Nevada short sales, the BPOs ordered will be interior – meaning the agent will need to come inside the home and photo document the home’s condition for the lender(s). The lender(s) may also order full blown appraisals from licensed Northern Nevada appraisers.
After they have reviewed the documentation and validated the value of the home, depending on the individual circumstances, short sale decision letters will be issued. In the case of two lenders, or mortgage insurance, this process takes longer.
If there is only one lender and short sale approval is granted, they typically are good for 30 days, but the window can be shorter. If there are two lenders, the first lender will wait for the second to approve the short sale. Often a negotiation occurs between the first and the second with the first agreeing to divert some of the funds from the sale of the home to the second. Once the first and second agree on an amount the second will accept to release their interest in the property, the first will work on their short sale approval. Each will issue a letter with specific terms at the time they approve the short sale.
If there is mortgage insurance (either purchased by the current owner at the time they bought the home, or put in place by the lender at some time afterward), the application must then also be submitted to the Mortgage Insurance Company(MI Company) for approval. The first lender will coordinate the submission of documentation to the MI Company and their approval could take another 10 business days. It is important to note that any one of the lenders or the MI Company not approving the short sale can derail the transaction.
Once approval is obtained from all parties, the buyer needs to act quickly to seek their loan approval. Another appraisal will be completed for the benefit of the buyer’s lender, and then all parties can move to closing.
What happens to the amount between what you owe the bank and what your home sells for?
There are two answers to this question, and we’ve found often this depends on whether you have one or two lenders.
Our experience has been that first position lenders have been forgiving the difference between the amount received and the amount owed. Keep in mind that lenders are not required to forgive this difference, and if your short sale approval letter does not specifically state that your lender is forgiving the debt, it may not be forgiven.
If you have two loans on your property, depending on the balance of the second mortgage and the situation surrounding how your second mortgage was obtained (cash out to pay credit cards or true second mortgage) how the lender reacts to the short sale has been case by case. Again, read the short sale approval letter. It will clearly state if the lender is simply releasing their interest in the property or whether they are forgiving the debt.
It is also important to note that being a short sale seller can have negative impact on your credit report. It is also not your only option. You can contact your lender and see if you qualify for a loan modification, or you can negotiate a deed in lieu of foreclosure. It is important that you weigh all your options and we recommend you consult a Northern Nevada attorney to clearly understand all the options open to you. If you employ an attorney during your short sale, ask him or her up front if they will submit their bill to escrow to be paid at the time of closing. This way you can get the legal advice you need without paying up front for it during a time of financial distress.
If you are a homeowner in Northern Nevada and you have experienced a reduction in pay, loss of job, death, divorce, medical expenses due to illness, and can no longer afford to make your mortgage payments, there is help and there are options. The worst thing you can do is – do nothing.
Call us today – we are here to help you consider all your options and decide the best path back to financial well being for you and your family.
This article is not all-inclusive and many aspects of short sales are specific to each homeowner situation. If you are a Gardnerville, Minden, Carson City, Reno, Sparks or Dayton homeowner and you are in financial distress, there is help available. Call me and I will be glad to sit down with you – confidentially – and go over your situation specifics and assist you in determining if you are eligible for a short sale.
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About The Author
Christianne Gordon, REALTORÂ®, CDPE, SFR is a Northern Nevada Real Estate Specialist that can assist you with the purchase or sale of real estate in Gardnerville, Minden, Genoa, Carson City, Dayton, and Reno/Sparks.
To search all available homes for sale in the Northern Nevada area, please visit GreatNevadaHomes.com or contact us for a FREE ListingBook account!