Short sales are complicated, but can help homeowners who owe more than property is worth

Exhausting all options

Morgan Knull, a real estate agent with Re/Max Gateway, said, “Have a conversation with your lender” before trying the short-sale route. It’s often in the bank’s interest to help homeowners stay in their homes. Owners should make sure they’ve exhausted all options for loan-modification programs, he said.

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Short sales in the Washington area.

A short sale is not the solution to all of homeowners’ economic problems. For example, the loss that a lender absorbs — the deficiency — is not always forgiven.

Mary Ann Weaver, the negotiator now working with the Damianis, noted that lenders sometimes require an unsecured promissory note on a lesser amount, spread out 15 years or longer. Some require a cash payment toward the deficiency. Some retain the right to pursue the deficiency in the future.

And, unlike with foreclosures, the short-sale seller is responsible for all maintenance and expenses on the property until it’s sold. Other expenses, such as delinquent home-owner-association fees, tax liens, title searches and closing costs may not be covered by a lender, but must be cleared before closing.

Also, short sales may have tax consequences. Although the Mortgage Debt Relief Act of 2007 generally does not count the debt forgiven on a primary residence as income for the seller, this program is slated to expire Dec. 31.

Relying on negotiators

For homeowners, trying to keep up with all the paperwork and constant follow-up required and ensuring that often recalcitrant lenders are doing their part can be a full-time job. That’s why many real estate agents are turning to short-sale negotiators — people who are well-versed in the terminology, laws and quirks of the process.

“Short sales get into a lot of lawyerly language and fiduciary duties above and beyond the expertise of the average real estate agent,” said Mary Wharton, an agent with Long and Foster. “A specialist can help structure a contract that will be most acceptable to a particular lender.”

Efficient, frequent communication between your agent and the lending institution or institutions is vital in the short-sale process. Missing documents or looming deadlines, if not addressed quickly, can halt — and possibly derail — all proceedings.

To find the best agent for your circumstances, Gormley, of Cornerstone Properties, suggests interviewing several and asking pointed questions, such as: How much experience do you have with my bank? How many short sales have you done?

(Short-sale specialists can be found at agentlocator.bankofamerica.com. Many of these agents work with short sales beyond those handled by Bank of America.)

Keep in mind that real estate agents and negotiators do not make money from short sales, no matter how long the negotiations have been going on, until the deal closes. Their commissions are usually part of the negotiated price the lender approves.

Exercising patience

Short sales can hit a snag or come undone at any turn. Whether you are a buyer or a seller, prepare to dig deep into your well of patience.

“Maybe one out of 25 [short sales] gets approved in two weeks,” said Rodriguez, the Fairfax lawyer. Others can take three months, six months or longer.