The prospect of losing your home to a foreclosure is always a difficult thought to consider, especially if you’ve put many years into dutifully trying to keep up with your mortgage payments. You likely have concerns about impacts to your credit score, where you’ll live next and other matters. When things take a turn for the worse and your bank starts serving you papers, you may begin to question your decisions, even yourself.
The most important thing to keep in mind is that sometimes things happen that are beyond your control. None of us have any guarantees in life — we can only try to make the best decisions with what’s in our control to decide. Markets drop, homes fall in disrepair, bank programs go away, etc.
If you find yourself in this situation, it’s vitally important that you focus on the task ahead. If you owe more on your mortgage than your home is worth, you may wonder… “…how to sell my house in Hawaii when a sale price won’t even cover the mortgage?“.
Your answer may be a short sale.
What is a short sale?
A short sale is simply a sale of your house where your bank, i.e. Bank of America, Wells Fargo, Chase… allows you to sell your house for LESS than what you owe on your mortgage to them. Your bank takes a ‘short’ position on their loan to you, i.e. a loss.
For example, let’s say you own a 4-bed 2.5-bath 1800 sqft single family house in Kapolei. You owe $650,000 to Bank of America, but because of a leaky roof and other items, the property is only worth $550,000. If you sell your house for $525,000 with the bank’s approval (which is negotiated as part of the short sale process), then you’ve successfully completed a short a sale. It’s a great way to avoid a foreclosure.
How do short sales work?
Now that we’ve defined what short sale is, let’s briefly go through the process. You’ll first need to contact either an investor buyer (like us) or your own licensed realtor because the bank is unlikely to work with you directly. This person will work with you on arranging the short sale package which is a collection of financial statements, tax returns and other documents that the bank will need to review before proceeding.
Remember – your bank does not need to allow your short sale. You must make a case for doing so. A hardship letter will be part of this package and can go a long way in convincing the bank to work with you.
Examples of hardships include:
- Unemployment or reduced income
- Medical emergency / illness
Examples of reasons that do not constitute hardships are;
- Buying another property
- Moving to a smaller home
- Bad purchase decision
- Do not like their neighbors
We have our own short sale mitigation team, including licensed Hawaii realtors, that works on behalf of our short sale customers at no charge. If you choose to work with your own realtor, they should do the same.
Your property will then go on the local Hawaii MLS for the purpose of attracting buyers (if working with us, we will be ready to go with our purchase immediately).
After a negotiation phase, during the the bank may order a BPO (broker price opinion) or appraisal, the bank and buyer agree on a purchase amount and terms and proceed towards a closing. While this may sound simple, understand that short sales can often take a long time. The banks aren’t known for moving quickly, especially with the backlog of properties they took back over the recent years. So give it time, but know that this is a much better scenario than getting foreclosed upon.
Why do banks agree to short sales?
Why one earth would a bank be willing to take a loss of $100,000 or more on a property, especially when the Hawaii real estate market appears so strong? Let’s look at what happens if the bank forecloses on you.
If the bank takes back your house, they then….
- Own your house, which is not what banks are designed to do. The banks are in the business of making loans, not owning property.
- Own a property that, based on statistics, is likely in some form of disrepair.
- Will have to spend money every month on yard maintenance and other forms of upkeep.
- Will have to eventually put the property back on the market where they know they will get less than market value.
- Will have to pay broker commissions.
- Will have the funds tied up in your property until they can liquidate it and make another loan to a new borrower.
Do you see why the banks are open to just taking the loss now? They’d rather take what they can and go make a new loan elsewhere.
While there will be an impact to your credit score, it is likely to be far less damaging than an actual foreclosure which will stay on your record for many years. There may also be tax implications as the laws seem to change year by year — ask a CPA or a tax attorney if you have any questions. Lastly, we almost always see deficiencies (the difference between what you owe and what you sell your house for) waived as part of the short sale negotiation.
TAKE ACTION TODAY…
If you’re upside down in your mortgage or worried about getting foreclosed upon, talk to us — for free — about your situation. Perhaps a no-cost short sale is just the solution you’re looking for. Imagine how great it would feel to put the whole foreclosure and mortgage mess behind you once and for all! We can help make that a clear reality for you.