Continuing our new short sale series for realtors, we look at the different life events and financial circumstances that could affect the success of a short sale. If you would like to suggest a topic you would like us to cover, please email email@example.com.
If a client has contacted you to negotiate a short sale with their lender, you should make sure you have a complete picture of the client’s situation. Here are a few things to consider before moving forward:
How many mortgages does the homeowner have? Homeowners needing a short sale are typically in a financial bind and may have stopped paying on a second lien several years ago. Often, the lender on the second lien cannot foreclose on the house because it would put the lender in a bad financial situation. But, just because the lender has not initiated a foreclosure does not mean the debt has been waived. Make sure the homeowner discloses the balance owed on all mortgages, regardless of whether they have paid on them recently, so you know which lenders will be involved with the short sale.
Does the homeowner have an IRS lien? An IRS lien does not preclude a short sale, but it does require additional legwork to have the lien lifted, as we recently outlined in a previous post. The IRS will remove the lien from the house if the homeowner can prove that they intend to sell the house and will not be receiving the funds. The realtor will need to complete Form 14135 and work in tandem with the homeowner to submit various other documents required as part of the process.
Was there a divorce? If the client went through a divorce between the time they bought the house and the time they are attempting to sell, make sure the house is accounted for in the divorce decree. If it is not, the ex-spouse must confirm in writing that the house can be sold. If the former spouses don’t get along or want anything to do with each other, the agent will need to work with them independently to obtain the necessary documents or simply not take on the client.
Has the client received a foreclosure notice? In Texas, foreclosure auctions are held on the first Tuesday of the month. The lender must file the notice of foreclosure at least 21 days in advance, which means usually the realtor and homeowner have less than three weeks to try and negotiate a short sale with the lender. Even with such a tight timeframe, all hope is not lost. If you act quickly and know what steps to take, it is still possible to effectively stop a foreclosure to do a short sale.
Has anybody died? If a couple purchased a home together and one spouse kept the house after the other died, you need to determine whether anyone else could claim ownership on the property before proceeding with a short sale. For example, if the deceased spouse had children from a previous marriage, those children have to sign an affidavit stating they have no claim on the house. The challenge often is finding the children and managing any hard feelings surrounding the fact that the children were from a previous marriage.
Did the homeowner receive government assistance on the down-payment? In some cases, a homeowner may have received assistance toward the purchase of their home through a government program. For example, Dallas County offers assistance on the down payment toward the purchase of the home, in return for which the homeowner must live in the house for a specified period of time. If the homeowner has not met this criterion, they will need to repay the government funds, and a short sale is not an option.
Short sales are often very involved and time consuming, because so many details must be considered throughout the process. By discussing major life events with the homeowner and determining the full scope of their financial picture, you can ensure the process goes more smoothly and reduce the risk of sudden surprises.