There are a lot of real estate professionals who are unsure about how to respond to homeowners and their concerns about short sales. Understandably, many homeowners are nervous about the idea of a short sale. The thought of going through one can be scary and unpleasant to go through with the amount of paperwork and disclosure involved. Here are a few responses you can use the next time a client expresses these concerns:
1. They want to review their options. Tell them you, as their agent (depending on your state and how involved you want to be) will help them check out other alternatives. In many cases the homeowner already knows they will not qualify for a loan modification because of unemployment, sickness or other unresolved hardship, and income levels that don’t meet the minimum requirements for a loan mod. In some cases their credit rating has already been too damaged to qualify. If these factors have not been reviewed before you sit down with the homeowner, do your client a favor, and make certain there are not other options. They’ll remember the kindness and come back to you should those other options fall through. It will also help boost your reputation as an honest, ethical agent who is looking to help people, not just profit off of them.
2. The Homeowner is concerned about what a Short Sale will do to a credit score. There is new information from the vice president of VantageScore, Sarah Davies, which indicates the impact on a consumer’s score is pretty minimal and may actually be positive compared to the alternatives. She indicated at a Loan Modifications Conference in Dallas that Forbearance, Modifications and Short Sales all actually can improve credit scores because they reduce debt loads relative to income and make the borrower inherently more likely to be able to pay back debts because the debt to income ratio will improve. The impact on someone with a credit score of 862 would be a 3 point increase on average. A borrower with a 625 score might actually gain 18 points. If the homeowner chooses foreclosure or bankruptcy the impact on the credit score will be quite severe. A foreclosure may reduce a credit score by as much as 140 points, while a bankruptcy may decrease a credit score by 365 points and keep the mark on the record for 7 to 10 years. As to your other credit scores, the damage might already be done whether they choose to go through with the foreclosure or do a short sale. BUT, the real benefit of a short sale comes when they go to get financing for a new home purchase. According to FHA guidelines, a short sale could cut 5 years off of the time that you must wait before they will provide financing for you again.
3. Homeowners fear that they will have to pay the forgiven debt as capital gains tax. While this is true under normal circumstances, the federal government has a process by which a waiver of this capital gain can be made on residences and income property that are sold at Short Sale through the 2012 tax year. For those in special circumstances, such as those who are selling a second home at Short Sale, a good tax attorney should be able to substantially reduce or eliminate the federal tax debt as long as the property owner has been able to demonstrate hardship. Make sure they speak with a tax attorney who can inform them of all of the consequences of a short sale.
4. Homeowners fear that the Lender will make them pay back property taxes. It is true that some Lenders do use repayment of liens and other fees a part of the negotiation process. However, very frequently a Short Sale negotiator will be able to get these liens paid by the Lender as part of the settlement package. If the deal is better than the alternative of foreclosing to the Lender, then they will generally negotiate a deal that will work for all parties. It simply does not hurt to try because the remaining options to the Homeowner are much worse.
5. Homeowners believe they can save the home by going through bankruptcy. At best bankruptcy is a delaying action. The Lender will need to wait until the bankruptcy is discharged or dismissed in order to proceed with a foreclosure, but they almost always will take back the property at some point. As you see, above, the impact on credit is serious and long-lasting. Of course, many Homeowners and Investors who got caught in pre-construction losses have little option but bankruptcy when insolvency is reached. In this case, the Short Sale Investor can wait until the bankruptcy either is completed or falls through to try to secure a Short Sale for the Homeowner. Occasionally a bankruptcy trustee will look at a petition to remove a property from the bankruptcy in order to sell it at Short Sale if there is a Buyer ready to take it off the hands of the Court and the Lender.
6. Homeowners are reluctant to move from a cherished home into a rental property. It is like any other grieving process. There are stages of denial, anger, sadness and finally acceptance. The best time to put a home under contract for Short Sale is when the Homeowner has reached that acceptance stage. Simply provide all the facts you can to help support the best decision for this client, and move on until the Homeowner is ready to cooperate with preparing the hardship package and moving on with a sale.
If I can assist you in any way, please let me know. I can handle your short sale properties at no cost to you, or your client.
Eddie Kearns
KAINC
shortsalebuy.com
336-510-4561
No comments:
Post a Comment