Short Sales: why they will be here for some time

“Short sales” are sales where the borrower has to sell their property and owes much more on the property then the current value of the home (otherwise known as being upside down). These sales are becoming much more “normal” and buyers and sellers alike have very little information as to why/how they work, so I thought for this post I would explain the general idea of the “Short Sale”.

Most of the time when a seller gets behind on payments on their mortgage they have a limited amount of time before the bank will start the foreclosure process. In the past few years, as the real estate market in Tucson Arizona has gone down, many homeowners have found themselves in the situation of being upside down. With ARM’s adjusting, many other homeowners simply cannot afford the payments on the home anymore. They also have no equity left to refinance into a fixed rate loan and cannot sell because they would not have enough cash on hand after a sale for the fees and payoff of the loan amount. For people in this situation a short sale is what should be strongly considered. In most short sale situations, you will need to be behind on payments before the bank will allow it. Also, you will most likely need to submit financial information and an explanation for why you have gotten behind on the mortgage. In addition, some banks will require that you have the property on the market for at least 90 days before they will consider allowing a “Short Sale” to occur.

Once all the documentation is submitted, the loan mitigation department of the bank will review your file and make a decision whether or not to grant a “short sale”. More often then not, they will. To the bank, a foreclosure costs a significant amount more than just allowing you to sell your home for the current market value. Once granted, your real estate agent can lower the price to a competitive number, which should allow you — the homeowner — to get showings and ultimately one or more offers. Once the offer(s) are submitted, the bank will review them and either accept, reject, or counter the offer(s). If the bank accepts, the process is much like a normal sale. All closing activities are very similar.

Once the escrow closes, the bank forgives the amount that the property was “short”. Also, all the real estate commissions and other costs of sale for the seller are paid out of escrow by the bank. Therefore, the seller will essentially need no money to complete a “Short Sale”. One word of caution is that there are possible tax and credit consequences with a “Short Sale”, and a competent tax professional should be consulted before you decide to try to sell your property “Short”.

This entry was posted on Monday, October 1st, 2007 at 4:33 pm and is filed under Financing, Selling. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.