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In today’s everchanging market, many in Gwinnett are finding the need to short sale their homes. The following may answer some of your questions if you are at this crossroad.
- Who can negotiate your short sale for you? Per recent changes in the Secure and Fair Enforcement for Mortgage Licensing Act and Georgia Residential Mortgage Act, only Loan Originators can handle negotiations of the terms of any loan and/or modify clients’ current loan terms. Realtors can only provide facts and information regarding the subject property to the Lender.
- How much commission am I expected to pay if I short sale my property? Lenders have various rules as to how much they will allow to be paid on a short sale. Typically, Fannie Mae and Freddie Mac and participating loan servicers will honor the negotiated commission up to 6% of the sales price. However, other Lenders can set their own parameters and limits so it is very important to find out UP FRONT if the short sale Lender has any requirements regarding commission BEFORE you sign a contract. Your listing agent should be made aware of these Lender requirements so they can correctly post this information in the multiple listing service. Having to go back to a Lender to negotiate commission could be a costly mistake as it could delay the process.
- How does the Loan Originator communicate with the Lender? Lenders use technology to handle and negotiate short sale requests. One of the most widely used is the Equator system whereas the appropriate parties will login and communicate in a virtual environment. Preciseness and urgency must be communicated clearly to eliminate delays and relay importance of timelines.
- How long will the process take? You should allow at least a 3-4 month turn around (unless the short sale is pre-approved). The key is to get paperwork in early even if there is no contract yet. The cover letter can request either a “Modification of Loan Terms or Short Sale as provided under HAMP (Home Affordable Modification Program) or HAFA (Home Affordable Foreclosure Alternatives). An eligible HAFA borrower is entitled to receive pre-approved short sale terms BEFORE listing their property as well as receiving the minimum acceptable net proceeds within 30 days of the borrower’s request.
- When will the Lender talk with me about doing a short sale? In almost all cases, you must be in default on your loan before a Lender will even consider a discussion on a short sale or loan modification program.
- Will I be responsible to pay the remaining portion of the loan that is not collected with the short sale? Be aware that the Lender may require you (or the Borrower) to sign a note for the difference between the sales price and loan balance. Read the terms carefully (e.g. no interest, term period, etc.) and make sure to negotiate a FULL RELEASE OF LIABILITY so the Lender can never come back and sue you later for the losses.
- How to limit the most common Lender problems…
a. Know the difference between prequalification vs. approval. Prequalification is a simple process of gathering information and checking to see if it conforms to the guidelines. Approval means the information has been verified, underwritten, and approved by the lender.
b. Watch timelines for Financing Contingencies very carefully to make sure necessary extensions are filed. As a general rule, the Buyer will ask for a 21-30 day financing contingency.
c. Value the importance of the relationship with the Closing Attorney. They gather necessary information from all parties and “seam” everything together between the Lender, Seller, Buyer, and Agents so a smooth closing can take place. Timeliness is extremely important in responding to their requests.
d. Your property must be appraised at the “right price”, and must be underwritten and approved. The appraiser has up to five days to provide the appraisal to the Lender from the date ordered. Requirements for appraisals are much more stringent than in the past and now foreclosures are thrown into the mixture for valuations which definitely has an effect on the outcome.
e. The latest underwriting standards are ever changing and becoming very costly for lenders. Taking the necessary time to provide the proper paperwork and deliver the perfect file will help to avoid rejection by Fannie Mae or Freddie Mac. Lenders have less flexibility and have to buy back loans that are not perfect.
f. A Seller’s expectations have to be realistic and they must be prepared for a lengthy process and a bumpy road. With the right team of people working for you (Agent, Loan Originator, & Closing Attorney), the process will be a success.
8. How to limit your chances of legal consequences…..
a. The Buyer’s Agent may recommend the buyer purchase title insurance and surveys. This is legal protection for the Buyer, but these expenses will be negotiated as part of the closing costs a seller is willing to pay in the contract.
b. Always communicate quickly with offers, counteroffers, withdrawals of offers, and any bad news (in writing). Time is always of the essence.
c. DISCLOSURE IS VERY IMPORTANT. The Seller’s Disclosure Form should always be completed by the owners of the property – never your Agent. Your Seller’s Disclosure may be given to the Buyer’s inspector when they come to inspect the property, so it is always best to disclose any issues you have had with the property and when repairs were made to rectify the problem, if appropriate. If the Buyer can prove there were existing problems with the property that were KNOWN by the Seller yet not disclosed, he will have a good case in court and the Seller will be held accountable.
At Atlanta Housing Source, we want to be your source for real estate. Whether you live in Gwinnett, Cobb, North Fulton, or Forsyth, we strive to exceed your expectations in your real estate needs. Please email us at info@AtlantaHousingSource.com for more information on short sales or call Mark Lackey at 404-886-8789.