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Welcome back. My name is Joe Martins with Mov'n On Up and I'm here in Springfield, Massachusetts
at the law firm of Peskin, Courchesne & Allen with our guest speaker, Attorney Nyles Courchesne.
And, we're here to speak about short sales (distressed property sales) and what sellers
really need to think about with regard to that type of real estate transaction. It is
not a "vanilla" real estate transaction. There are many issues that can come up during that
process. So, I'm going to let Attorney Courchesne take this away and learn more about short
sales. Thanks Joe. In some of the previous segments we talked about
the importance of speaking with an attorney before you sign contracts and before you engage
in a particular buying or selling venture. With a short sale it is especially important.
The reason being there's a lot of restrictions on the transaction that wouldn't exist if
there was equity in the property. If there was more wiggle room that we have in a typical
purchase and sale agreement. So, for sellers who are thinking about selling their property
short it is very important that you engage a qualified attorney. Speak with somebody
with a great deal of short sale experience. In a typical short sale. Let me first describe
what that is...sometimes a seller may find that there's not enough equity in their property
to sell their property and pay off their mortgage obligation and the realtor, attorney and some
of the other incidental fees that would normally be paid by a seller in the transaction. So
any number of items can make the sale "short". And, usually because the most expensive thing
to be paid off is the mortgage we're typically talking about trying to make a deal with the
lender to take less money than what is owed to satisfy the mortgage in full. And, we're
also looking for the lender to forgive any of the deficiency that they're going to create
in letting the property be sold for less than what is owed on the mortgage. So, that would
mean not only releasing the lien on the property, but for the lender to say "and we're also
going to forgive the remaining underlying debt". That's typically what the goal of a
short sale is. It's important that sellers understand that a short sale takes a lot longer
than a normal sale. Even after you've found a buyer there are steps in the process that
take months to complete. And it's very important that you start the process with an attorney.
Bank of America, for example, one of the major servicers of residential loans in the United
States has programs that will pay incentive money to a seller to relocate if they qualify
so long as they've applied before the short sale, before they list the property with an
agent. This is a cooperative type of sale where the lender wants to be involved in the
listing of the property. And, if you don't follow the process set out by each bank independently,
and find out what each bank is requiring or offering with regard to incentives you can
actually disqualify yourself from an incentive if you just try to go about this is the normal
way as though this wasn't a short sale and you were just engaging in a regular residential
real estate transaction. So, to clarify if they wanted to perhaps go through and take
advantage of a special program that is available from a lender that if they were to actually
- by accident - have a real estate agent list the property...because they think it's an
ordinary transaction and there's nothing they really need to be concerned about....so they
have the real estate agent list the property. But, then they find out about this program
and they try to take advantage of it they may now have completely ruined the chance
of being able to use that program because the property has now been listed. Right. Oftentimes various banks have different programs, and so it is important
that you understand the program before you engage the agent. It's important for the agent
to understand what they're selling because a lot of what they're selling has to due with
what the bank will or will not allow. And, oftentimes as we discussed in other segments
the attorney can be the last one brought into the mix to assist the seller or buyer in a
transaction, and we're going to have to explain that even though a lot of time, effort and
energy has gone into getting a contract signed that particular transaction will not work
because of some other outside circumstances that the agent or sometimes the seller themselves
were not aware of. I can give you an example of one of those situation. A lot of times
people who are selling distressed property in a short sale (and that term "distressed
property" is a general way to describe a situation where the property is...there's not enough
money to pay all the obligation...it's also a general term sometimes use for short sale
property or property that has been foreclosed on, or property that's owned by a bank after
a foreclosure. We call it all "distressed property"). Getting back with regard to the
sort sale. We may find that the seller who is selling the property sort not only hasn't
paid their mortgage, but maybe they haven't paid their condo fees. Maybe they haven't
paid on credit cards and now there are additional liens on the property. And you don't have
a way to handle those liens if we're not aware of them in the first place. So we might go
through a short sale process which is typically a 60-90 day process. We might in that process
have disclosed all of the things that we need to have paid in order to make the transaction
go forward and we have disclosed to the bank what there net is going to be after we've
paid all these items. If we haven't included some items that we needed to such as the payoff
of the executions or the condo fees we'll have an approval that isn't going to work.
And we're going to have to start the process over again. And the bank may be unwilling
to pay 2nd, 3rd or 4th lien holders any money at all. Sometimes in these situations the
short sale isn't even possible and it's important that we evaluate the transaction before we
engage other parties in the transaction. So, essentially you're just trying to come up
with a plan before we start moving forward. Otherwise it seems that they would
put themselves much closer to whatever deadline exists such that they have less and less time
to address the issues so whereas you were saying, for example, that process (the short
sale process) may take weeks and in that time you're getting closer and closer to the bank
just reacting to the fact that nothing has been done. And if they haven't engaged you
and haven't figured out what they can and cannot do early on, they're now that much
closer to the bank basically stepping in and saying "Well, you know we're going to do what
we're going to do." And your options at that point are limited to none.
Right. And, that's why when you're in a short sale situation and you realize you're in this
position you want to move as quickly as you can and you want to move as effectively as
you can. So what that means is we don't want to take chances. We want to be prepared before
we list the property. We want to be prepared before we accept an offer. And one of the
things we were talking about a little bit earlier was that there is ultimately a deadline.
And, eventually the bank is going to foreclose on the property if we're not able to find
the right buyer. And, so it's important that we consult early. That we provide the documentation
weed to provide. And we let the seller understand what their obligations are as far as maintaining
the property. And we were talking about condo fees. Those are one of those things that have
to be paid. Water and sewer have to be paid. Gas and electric have to be paid because the
realtor needs to have the opportunity to show the property. If the house isn't lit up and
there's no heat the value is going to be lower. The bank's goal is to get this property sold
at market value and the seller has to be willing to engage in that process. And we want to
find the right buyer. We want to find a buyer that doesn't have a set of conditions that
is going to make it almost a miracle that all these planets will align and the deal
will happen before the foreclosure takes place. So we want to limit the buyers to buyers who
have the least number of contingencies. For example, they don't need closing costs or
they don't have another house to sell, or they're not going through a special program
that's going to have stricter scrutiny on the condition of the property. You might think
twice about FHA or VA loans . That's something to be aware of. If you had loans to review
as far as loan products that people are using you want to make sure you're going with your
strongest buyer and that is a decision that is the seller's decision to make. Just realize
the cleaner the deal is the more stronger the buyer appears to be, the better your chance
to getting the transaction to be completed in a timely manner in a way that you're going
to avoid that foreclosure and all the consequences that could follow. So, in order to
really understand everything in their context, for their financial circumstances, for their
specific property, that approaching an attorney will at least uncover any potential issues
and give them a path to get from where they are today to, hopefully, being able to get
that property sold. And get, in terms of financial obligations, financial arrangements, everything
in the best possible way in their favor. To the extent that it's possible. Because your
options are increasingly limited as you get closer and closer to that deadline. So the
further you procrastinate, and the further off you put engaging an attorney and perhaps
even speaking to others -- for example, a real estate agent -- before speaking to an
attorney, the worse of you potentially leave yourself because you're just moving closer
and closer to that inevitable deadline. And, is there anything you'd like to add? A lot of quick issues that go with short sales. We talked about this a little
bit in a previous conversation. There can be serious tax consequences depending on whether
you're selling residential real estate in a short sale or an investment property in
a short sale. It's very important that you consult with an accountant before you make
the decision to move forward. The 2007 Debt Relief Act has not been renewed into 2014.
So there can be Federal tax consequences if you do choose to short sale your home. That
being said, many people will find, after speaking with an accountant, that it is still la good
decision to make and in their best interest. But at least they won't have the worry of
what those potential tax consequences can be. And you'll also have found yourself involved
with another professional that can help you save a lot of money in taxes. And, if and
when you sell your short sale property that would be the same person that you'd go to
to file your taxes the next year. So, whether or not they're either already headed
toward potentially losing their home or that they've already actively considered something
like a short sale, getting in touch with an attorney and an accountant and trying to put
all the pieces together --and understand where they stand today and what their options are
is the absolute first place that they should start before doing anything else...and engaging,
let's say even the lenders and realtors in terms of moving forward. They've got to know
the context of their circumstances. Absolutely, absolutely.
Ok, well great. In the next video we're going to talk about the buyers' concerns with short
sales and bank-owned properties. Again, thank you to our guest speaker Attorney Courchesne.
And, at the end of this video you will find his contact information and website information.
We encourage you to reach out to him if you have any questions about the sale of distressed
properties. Thank you.