Las Vegas short sales have always been around but in general were pretty rare. Usually, someone would endure a personal or professional hardship and had to sell their home. Perhaps the home had depreciated a bit and factoring in selling costs, the homeowner found they were unable to cover these costs. The homeowner would then contact their Realtor and assuming they could find a qualified Realtor, they would work with their bank and the bank might take a small loss to avoid taking the home in a foreclosure. Back in those days however, exotic mortgage products were not the norm. Recently, we have had mortgages such as interest-only, Alt-A, negative amortization loans, as well as having a 2nd even 3rd mortgages against the house which allowed a normally unqualified buyer to purchase a home. The negotiation with the bank was a little more straight-forward back then. Fast forward to 2009 where depreciation on real estate is rampant and whole regions have been has seen home prices down 30-50%, unprecedented since the Great Depression, when one considers the breadth of scale.
The first step is to accurately and HONESTLY take a look at your finances. Set up a place in a corner of the house; pull out your bills and a blank sheet of paper. Write out your all your monthly obligations as well as your gross monthly income. If you are under and it isn’t going to change just by modifying your lifestyle, you have some hard decisions to make. You’ll have to justify your situation as a hardship which will prevent you from recovering in the eyes of your bank. A Realtor proficient in short sales will be able to guide you with this process.
Talk with your lender and if they can modify your loan in a way that makes sense both near-term and long-term, that might make sense for you. Be very aware of how they will want to address the issue of future equity in your home when hopefully, prices might actually increase. Also, keep mind there is always a time crunch. Banks do not move fast except when agreeing to accept your money! The clock is ticking against foreclosure. When you’re going to be behind or certainly when you’re already behind, you cannot afford to spend all your time trying to do a loan modification and then not leave any time to attempt a short sale.
Next talk to a CPA or tax professional that is familiar with the tax ramifications of doing a short sale as well as being responsible for any potential deficiencies against your mortgage loss. If the CPA advises you that a short sale makes sense from their prospective, you can begin start scouting for a qualified Realtor.
The good news is that the entire industry is seeing the benefits of doing a short sale instead of foreclosure. Banks avoid having to take the property back in foreclosure. The home is only going to sell for what the market will bear anyway, so why they would want to go through the extra expense of having to own the home and re-sell it is baffling. The new bank generating the loan (if they didn’t pay cash) now has a new customer. The buyer got a great deal, and I am quite sure most of the neighbors are happy about having a viable owner as opposed to a distressed one.
Please check my next blog article when I will give you industry insider techniques to interview and select the right Realtor to successfully manage your short sale.
Paul Rowe is 5 year veteran of the Las Vegas real estate market, having seen both the incredible highs and now the lows of 2008 and 2o09.