Short Sales

Need to sell and have little to no equity in your home? Consider a short sale.

What is a short sale?

A short sale may be an option when a homeowner (borrower) either falls behind on the mortgage or, in today's market, just anticipates not being able to pay the mortgage for whatever reason, and now needs to sell the property to keep from being foreclosed upon. If there is not enough equity in the home to pay off the mortgage and all the other costs associated with selling a property, the bank will most times (since it is a much cheaper alternative to a foreclosure, which on average costs a bank in excess of $50,000) agree to allow a short sale to take place. This means the bank will allow the proceeds from the sale to be SHORT of the amount due. For instance, if you have a $200,000 mortgage and in this current market your home is only worth $175,000, and the costs to sell the home (commission, escrow fees other closing costs) are about $12,000, the bank only would net only $163,000 and cancel the remaining $37,000 owed on the loan. The $37,000 in this example would be forgiven by the bank and the seller would not be responsible for this amount in any way after the sale has taken place.

When is a short sale possible?

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A short sale is typically possible once a homeowner has fallen behind on their mortgage, and also does not have enough equity in the home or in other personal finance areas such as 401(k), bank accounts, or other financial instruments, to pay off the loan amount plus other costs related to selling (real estate commissions, escrow fees, other expenses), out of the proceeds of the sale. For homeowners in this situation, a short sale is a much more favorable solution than a foreclosure that may happen if you cannot get your home sold quickly. In current conditions, however, lenders have allowed many borrowers to complete a short sale even WITHOUT being behind on the payments. The lenders speculate that its only a matter of time before these borrowers default, and that by allowing a short sale sooner rather than later, the selling price of the home will be higher as the market continues its slide.

Here's how it works:

The homeowners (borrowers) go to their mortgage company and ask for a short sale to alleviate their situation of no longer being able to pay the mortgage payments, and also cannot sell due to a drop in home values in that area. Typically, most lenders will require that your property be on the market for at least 90 days prior to them considering a short sale. In addition, the borrower will need to complete a few documents for the bank to make the consideration, such as explanation of why you are in the financial situation you are in. Bank statements, retirement accounts, and other financial statements will most likely need to be provided before the lender will agree to the short sale. Once the lender does agree to the short sale, then all offers on that property will need to be reviewed by the lender and the lender can at that time accept, reject, or counter the offers on the property.

When completing a short sale transaction, it is of the utmost importance that you select a real estate agent (Realtor) who has had experience with them. A short sale is a very complex and highly sophisticated sale to complete, there are many parties involved, and also, typically, the bank will take time to review each offer and then decide which way they will go with the offer. In addition, there will be issues with home inspections since more times than not the sellers will not have money to fix items that fail the inspection. Addendums and changes that usually occur as a sale gets near to closing will need to be approved by the lender, who typically is a different part of the country.

In a short sale situation, the seller's credit will still be affected in an adverse way. There may be additional tax consequences by completing a short sale and a tax professional should be consulted before a home owner decides to complete one. Also, as one additional consideration, it is in your best interest to not wait till the last second before trying a short sale. As mentioned, they are very complex and take time to complete. After contacting your lender, your next call should be to a competent and successful real estate agent (Realtor) in your marketplace who has experience handling short sales.

If you are considering a short sale, please contact Michael and his team to assist you with this. Michael has completed these complex transactions before and knows the process extremely well. He has the experience needed to get your home sold quickly and alleviates you and your family of the burden of the property/mortgage commitment. Please contact him today to further discuss this option.