Short Sale Transactions

Buying and Selling “Short Sale” Properties

Though the market in Fairfield County has gained significant ground since tanking in 2008-2009, most Fairfield County homes have only recovered to 2001-2003 values and it does not appear that the vast majority of Fairfield County homes will be able to reach their 2005-2007 peak values anytime soon. That means many homeowners who borrowed based on that peak value may be “under water” on their mortgage, meaning they owe the bank more than their home is worth.

A Short Sale is when mortgage bank allows a homeowner to sell a property for less than the amount owed on the mortgage. Virtually unheard of before 2008, short sales have become a relatively common practice since the real estate market contracted in 2008 as an alternative to foreclosure.

For Buyers

For Buyers, short sales present an opportunity to get a great deal on a property. Often, they sell for an additional discount of 10%-20% below market value. However, short sales are not for faint of heart. Often, a short sale can take as long as 9 months to close.

The cause for the delay is that unlike a regular real estate sale, the seller’s bank must approve the sale before it can go through. Often, sellers are asking their banks to forgive the difference between the amount owed on the mortgage and the lower sale price. Banks will look very carefully at their borrower´s finances to make sure that the borrower cannot otherwise afford to pay the difference. The bank will not begin its investigation until a Buyer has made a bonafide offer. As a buyer be prepared that the Seller’s bank is going to want to investigate you as well to make sure that your offer is genuine and “arm´s length” (meaning you are not working in concert with the seller to in some way defraud the bank).

Too often, buyers are lured into making an offer on a short sale purchase with promises that the bank will quickly approve the sale. Too often, these promises turn out to be false and it can take banks months to approve a short sale. Our office has seen too many buyers forced to live with their in-laws because a short sale that was supposed to take two weeks to be approved took six months. If you’re in a rush or on a set time table, a short sale may not be the best option for you.

Short sales present additional pitfalls to Buyers. Unlike a traditional real estate sale where the Seller is walking away with at least some cash proceeds, the only benefit to most sellers in a short sale is that they’ve avoided foreclosure. Many sellers can be bitter about having sold their home for significantly less (sometimes as much as 2/3rds) than it was worth just seven years ago. Our office has unfortunately seen sellers try and take it out on our clients by leaving the house filthy for the buyers or worse, stripping the house of anything of value (fixtures, appliances, etc.) and attempting to sell them to recoup some cash for themselves from the sale.

Working with a short sale attorney

If you are considering purchasing a short sale, you need an Attorney who has experience closing short sales and working with banks to get them approved. Also make sure your attorney works closely with all realtors involved to make sure the Seller leaves the home in the condition he is contractually obligated to do so and that steps are taken to make sure you are protected from any last minute “tricks” by the seller.

Russo & Rizio, LLC, Attorneys at Law has experience representing buyers and sellers of short sales and we would be happy to work with you. You can contact us at 203-254-7579 or rob@russorizio.com. We are always happy to meet and offer free consultation before you hire us.

For Sellers

For Sellers, a short sale can be a viable way of avoiding foreclosure, but should otherwise be a path of last resort. Short sales do not have the same effect on your credit as a foreclosure but they still do significantly harm your credit. If you need to sell your home and do not believe you will be able to sell it for more than is owed on the mortgage, take a serious look at whether or not you can pay off the difference yourself. Your bank is going to ask this same question itself before approving any Short Sale. If your bank determines you have the funds to bridge the gap, they are only going to approve your short sale if you agree to sign a note to the bank that obligates you to pay the difference. Therefore if you can pay the difference, it’s better to make this determination yourself and avoid needing to get the bank involved in the process in the first place. Keep in mind that you will not just need to pay the difference on the mortgage. You will also need to pay the realtors, your attorney and any conveyance taxes you may owe the State of Connecticut as a result of the sale (one added benefit of a short sale is that there are no conveyance taxes).

If you determine that a short sale is the only way in which you can sell your home and you cannot wait to see if your home’s value will continue to recover, you need to work with a realtor and attorney who have experience representing other homeowners in short sales. You will need a realtor who will price your home aggressively to sell but not so aggressively that the bank will feel that you are denying them of additional purchase funds that can go towards paying off your debt.

You want an attorney who will work with you from the beginning to frame the sale in a manner that will be acceptable to your bank. They should start working with you from the beginning to collect the financial information that your bank will need to approve the sale once you find a buyer. Often buyers are not prepared for how long the approval process can take so you want an attorney who understands that this process needs to move as quickly as possible.

It is also helpful to have an attorney representing you with experience defending homeowners from foreclosure. In the unfortunate instance that the bank refuses to approve a short sale of your home, you are going to need an attorney capable of representing you in the Superior Court and capable of negotiating the most painless and graceful exit for your from your property.

If you are fortunate enough to have your short sale approved, keep in mind the buyer is the main reason you’re able to sell your home and possibly avoid foreclosure. Treat the buyer with that in mind and be sure to deliver a clean home with all of the fixtures and appliances per the contract.

Russo & Rizio, LLC, Attorneys at Law has experience representing sellers of short sales and defending homeowners from foreclosure. We would be happy to work with you. You can contact us at 203-254-7579 or rob@russorizio.com. We are always happy to meet and offer free consultation before you hire us.