How-to Monday: Short sales
Associated Press photo
If you're looking for a house to buy or checking out your competition because you're selling, you've probably started seeing these words: "Short sale." It sounds like a wish to sell quickly -- and in essence, it is -- but more importantly, it means the seller is trying to get rid of the house for less than he or she owes on it.
When they work out, short sales can be a deal for buyers and a relief for sellers in danger of foreclosure. But they're complex. Short sales require the lender's OK, and there's no incentive for the lender to approve an offer if it thinks it can do better by foreclosing and selling the house itself.
Negotiating short sales isn't like negotiating regular sales, said Andrew Lehr, an agent with ReMax Signature in Baltimore. He can't simply take buyer offers to the seller. These are called "third-party approval" transactions for a reason: The lender looms large.
"You're ... dealing with a third party that can be in a whole different time zone, so the communication is not as effective," said Lehr, who's representing a short-sale seller in Dundalk and a variety of would-be short-sale buyers. "I always try to educate people putting offers in on short sales that it could be a drag-out process."
Yes, you heard that right. Short sales are not, on the whole, short. So many loans are owned by Wall Street investors nowadays that there are really four parties involved: The buyer, the seller, the mortgage servicer and the note holder.
The other wrinkle is that most anyone buying from a homeowner facing foreclosure must abide by the state's foreclosure rescue fraud law, said Phillip R. Robinson, executive director of Civil Justice, a nonprofit legal-help group in Baltimore that specializes in real estate matters. Resell the house within 18 months, and you must give at least 82 percent of your profit to the previous owner.
Speaking of foreclosure rescue fraud, Robinson says any homeowner in trouble should talk to a nonprofit housing counselor before signing anything. (You can find a list HERE.) There are a lot of scammers out there just dying to take advantage of you while you're down.
"Get a Realtor and go to one of the state-approved housing counseling agencies that will provide free advice -- independent advice," Robinson said. He recommends agent or legal representation for buyers, too. "Make sure you're not getting involved in a transaction that's illegal in some way."
Here's some good news for short-sale sellers and anyone else facing foreclosure: Thanks to a new law, you won't have to pay taxes on the amount of the loan your lender forgives in 2007, 2008 or 2009. Up 'til now, the IRS treated that vanished debt as income. (There are some exceptions -- it must be your primary residence, for instance -- so you'll want to get professional help.)
Have a short-sale story? Comment away.