To help members get the hang of short sales, we're publishing a series of articles with Practical Tips on Short Sales over the next several weeks. We've partnered with members Russ Bouknight and Paul Surles, two agents well-schooled in short sales, to give all our members the lowdown on what you need to know in this growing niche. Russ and Paul will answer one question on short sales each week.
This week's questions:
Q. Describe the difference between a home loan modification, a short sale and a deed-in-lieu of foreclosure.
Russ: A loan modification is when the original mortgage is changed by the servicer and investor based on changes in the homeowner’s ability to maintain the mortgage in its original terms. One such example is a reduced monthly payment for a trial period (usually three months). If the mortgage holder is able to make those payments, then the arrears amount is added to the back end of the original loan term. The account is then brought current at a reduced interest rate for a period of time. In order to get this type of modification, the mortgage holder has to have income and positive cash flow.
A short sale is when more is owed on the home than the market will bring and the mortgage holder is unable to bring the difference (the short fall) to the closing table. The lender is willing to release the lien against the property for an amount less than what is owed.
A deed-in-lieu of foreclosure is when the servicer/investor is willing to allow the mortgage holder to turn in their deed of trust instead of forcing a foreclosing on the property.
Q. As a listing agent, how can you establish a good relationship with the buyer’s agent (or vice versa)? Why is this important in a short sale?
Paul: The listing agent managing a short sale is like being a football team quarterback. He/she has the opportunity to achieve a win-win for the buyer, seller, and of course, themselves. The most important aspect is communication. Ensure that the seller's lender has all the supporting documentation; the listing information is correct in MLS; and update the buyer's agent often so the buyer is aware of how the transaction is progressing.
The best recommendation to a buyer's agent is to talk with the listing agent about any specifics and timeline that will apply to the transaction before writing the offer. Perhaps there is special language needed in the contract terms and conditions; the Short Sale Addendum might apply, or the anticipated response time from the lender is too long for the buyer. Both the listing agent and buyer’s agent are encouraged to communicate as often as needed so the buyer feels confident everything is moving forward. Chances are that this is the first time the buyer has been part of a short sale transaction, and he/she is relying on the REALTORS® to navigate through this process as efficiently as possible.
About Russ and Paul:
Russ has worked in real estate since 2002 and has achieved between $3.5 million and $8 million in sales volume per year ever since. In the past two years, he's listed approximately 95 short sales.
Paul works with Realty Resource, LLC and has been the listing agent or has partnered with other listing agents to educate sellers about their options to avoid foreclosure over the last two years. He’s sold both investment property and personal residences as short sales.
KCRAR Short Sales & Foreclosure Prevention Program
Want to know even more about short sales? KCRAR has partnered with mortgage lender Wells Fargo and private mortgage insurance provider GenWorth Financial to offer a REALTOR® education program focused solely on short sales and foreclosure prevention. The program will be held in two locations – one each in Kansas and Missouri – Wednesday, Nov. 18.
Keys to Understanding Short Sales will feature a panel of experts on this growing concern in real estate: REALTOR® Russ Bouknight with Reece & Nichols Liberty; REALTOR® Tameka Bryant with The Real Estate House; REALTOR® Paul Surles with Realty Resource of KC; Rullah Price with Wells Fargo Home Loans; and Eileen Pritchett with GenWorth Financial.
For more information, see the flier here. Register for the event here.