When Values Rise Mid-Process: The Short Sale You May Not Need

Not every short sale should finish as one. A property can be worth more than the owner believed at the start, and a property under review for a while can be worth more than it was when the file opened.

Both situations produce the same happy problem: the transaction you set up may no longer be the transaction you need. It is worth knowing how to spot it, because the process has momentum and momentum is not a reason to complete something that no longer serves you.

Free help first, and the fee rule

A HUD-approved housing counselor is the right person to sanity-check a change of direction. Counseling is free, and a counselor has no interest in whether you sell, refinance, reinstate or stay. Reach an approved agency through the U.S. Department of Housing and Urban Development or the national housing counseling hotline.

NOBODY SHOULD CHARGE YOU AN UPFRONT FEE to review your options or to talk to your lender, and that is doubly worth remembering here. An owner who turns out to have equity is a more attractive target for the operators who work this space, not a less attractive one. Be careful with anyone urging speed.

Two versions of the same discovery

The first is that you were never as short as you thought. Owners frequently estimate from the balance owed and a rough sense of the market, and the estimate can be wrong in either direction. The disciplined version of that check is set out in the equity check for Claremont owners, and it is worth doing properly before anything else.

The second is that things moved while you waited. Short-sale files are not quick, and a property that was underwater when the package went in may not be by the time an approval or a condition arrives. Nobody can predict which direction values will move or by how much, and that uncertainty runs both ways, which is precisely why it is worth re-checking rather than assuming the picture is fixed.

What actually determines the answer

Not an online estimate, and not a neighbor's opinion. What matters is what a buyer would pay for this specific property in its current condition, less the costs of selling and less what is owed, including any second lien, any association balance, and any accrued amounts the servicer has added.

Those last items are the ones owners forget, and they are why a property that looks like it has equity sometimes does not. Ask for a current payoff figure rather than working from an old statement.

Condition matters too, and it can move a valuation more than sellers expect. The way lenders and appraisers actually read a property is described in pricing a short-sale listing in Claremont.

If it turns out you have equity

Then several better doors open. An ordinary sale is simpler, faster, and far more within your control than a short sale, and it does not require anyone's approval. Reinstatement may be within reach if the arrears can be covered. A refinance may be possible if you can qualify. A loan modification may still be the best answer if staying is the goal.

Talk to the counselor and, where liability or documents are involved, to a real estate attorney. Also talk to a CPA or tax professional, because the tax picture of an ordinary sale is a different conversation from the tax picture of forgiven debt, and it is better had before you commit than after.

Changing course is not free, and should be done cleanly

There is a contract, there may be a buyer who has waited patiently, and there is a listing agreement. Withdrawing has consequences and obligations, and how you exit matters.

Talk to your agent about what the listing agreement requires. Talk to an attorney before terminating a purchase contract. Tell the servicer what has changed rather than simply going quiet, because a file that stops responding does not stop moving. And treat the buyer decently, because they held their financing and their plans in place for you.

Re-check at the natural checkpoints

You do not need to re-value the property every week, and doing so is a good way to lose sleep for no return. What is worth doing is a deliberate re-check at the points where something has actually changed: when a valuation comes back, when a condition is issued, when a buyer leaves, or when the file has been quiet long enough that the original numbers are simply old.

Ask at each of those moments whether the plan still fits the facts. Most of the time the answer will be yes, and the discipline costs you nothing. Occasionally the answer is no, and catching that is worth every one of the times it was not.

Do not talk yourself into it either

The mirror-image error is real. Wanting the equity to be there does not make it so, and an owner who withdraws on a hopeful estimate can end up in a worse position with less time. That is why the check should be a proper one, and why a counselor and an agent who will give you an honest read matter more than an encouraging one.

Nobody can promise you an approval, a timeline, a valuation or a market direction. What is available is a current, accurate picture, and the willingness to change your mind when the picture changes.

For the full range of options and how they compare, start at the Claremont short sales guide.

Anthony Grynchal has been licensed in California since November 2009.