Over the past few weeks the number of calls and emails about Sacramento area short sales has continued to increase.  This is an indicator the number of homeowners who are struggling to make their monthly mortgage payments is growing.  Of these homeowners who are contacting me about 40 percent have been instructed by their lender to contact a Realtor about a short sale.  This is because they have declined to provide a loan modification.

The number of loan modifications being done by mortgage lenders appears to be very small, especially compared with the amount of money they are spending to advertise their modification programs. As it turns out the federal and state programs that monitor these lenders or which measures their success is not based on the number of modifications but the effort they make to let borrowers know there are home retention programs. 

Many of the questions I have been getting are basic and include what is a short sale, can I do one and how long to they take? 

A short sale is basically a sale of a home where the sales price yields proceeds less than the seller owes and their lender agrees to take these proceeds in return for releasing their lien.  In most cases the amount the lender agrees to take will completely satisfy the borrower’s obligation allowing the homeowner to have a fresh start.  Although a short sale and loss of a home can be emotionally difficult and have negative impact on credit history, there are some very positive financial incentives.  These include reducing monthly housing expense and eliminating an asset and a larger liability which results in increasing net worth.

To qualify for a short sale the following questions are good indicators.  If you, or someone you know, can answer yes to these questions, a short sale may be a strategy to consider.

1. Is your home worth less than you owe to your mortgage lenders?
2. Since you bought your home, have you experienced a hardship such as loss of income, divorce, or health issues which makes continuing to pay your mortgage difficult to impossible?
3. Can you demonstrate the impact of your hardship and lack of financial capacity to pay the lender the short fall amount?  (Most lenders will want to see the same kind of information you provided when requesting the loan. This will include a financial statement, copies of bank statements, proof of income and tax returns)

If the answers to the above questions are all “yes” a short sale may be considered as a strategy to avoid foreclosure and to take a positive step towards financial recovery.  In the initial phases of a short sale the process is exactly like selling any home with the one exception of selecting a Realtor.  This is not a sale you want your best friend’s sister to help unless she has verifiable and successful experience negotiating with lenders.  Many agents will tell you there is not much negotiating with lenders and all you have to do is call them every week for an update. Don’t believe this, there is so much more to do and so many ways to get a short sale completed, especially if you have more than one lender.  An experienced agent can also find ways to protect your interest and make sure you have a successful short sale.

The time it takes to complete a short sale includes numerous variables such as the length of time to obtain an offer and negotiate a purchase agreement, who the lender is and what their short sale process is and the commitment of the buyer to stick with the purchase during the short sale negotiations.  We have completed short sales in 90-days from listing to close but that is very unusual.  We have also had short sales go as long as 14-months but that is unusual too.  I tell my clients to generally expect to be in the house for from between 4 and 6 months from the time we list the home. 

During this time while we are working on the short sale we advise our clients to use the funds that would normally go to mortgage payments, real estate tax and other home related expenses to keep other credit obligations current and to build a reserve which will assist them in renting when the short sale is completed.

If you or someone you know is interested in learning more about short sales in the Sacramento area please feel free to call Julie Jalone at (916) 290-9339 or send me an email to juliej@jalone.com.  I am happy to answer your questions and help if a short sale is the right option.