WHAT IS A SHORT SALE?

What really IS a short sale?

We’ve all heard the term “Short Sale” thrown around a lot lately in casual conversation. Contrary to popular opinion, it’s not a term for selling your home quickly. It’s the process of getting your lender to agree to take less for your home than what you owe on it. Short Sales have become so prominent in this current economy because property values have fallen so severely and since we were coming off of very strong markets, many homeowners are finding themselves upside down in their current home.

Who is selling their home short?

Homeowners who have a financial hardship of some sort are attempting to sell their home short in order to avoid foreclosure. Others are in a position where they have to move due to a job relocation or major life change and are also selling short as their only option to get out of their home.

How does a short sale work?

When selling a home short, a packet of information is compiled with the help of your real estate agent for submittal to your lender. This information tells the bank, in detail, about your current financial situation, your debt load, and your current property value as obtained through an analysis of the market in your area and what homes are currently selling for. This helps the lender obtain a value for your home and assess whether your hardship or change in circumstance is sufficient enough to release you from your loan obligation short of what is owed. This can be negotiated with multiple mortgages too, so if you have a second or an equity line of credit you could still sell your home short.

How long does a short sale take?

Negotiation of a short sale can be lengthy; however, the time lines seem to be moving faster as the banks are beginning to see the value in approving short sales. The average short sale is taking 3-4 months to get from listed for sale to closed with lots of negotiation in between. But the length of time can be decreased by working with a good real estate agent who is knowledgeable about short sales and a skilled negotiator.

Why would the lender take less than what is owed for my home?

While the lender would certainly loose money by approving a short sale, the loss is significantly less than what it would be in a foreclosure. If a home goes into foreclosure, the legal fees, processing time and costs and damage to the property all add significant costs to the process of taking the home back and reselling it. And in an instance where the home has a second mortgage on the property, the lender in second position stands to get nothing if the home is foreclosed on. In a short sale, however, the second position lender comes away with a small settlement and no legal fees.

What are the ramifications to selling my home short?

Much is still unknown about the specific effects to your credit score in comparison to a foreclosure. There may be a slight advantage to the borrower works with the lender toward a short sale instead of walking away and letting the home go into foreclosure. It depends on many different variables, including:

The Borrower – how many late payments on the mortgage are reported before the settled debt, the nature and payment history of other accounts in the owner’s credit profile, the credit score before the short sale, and the credit history after the short sale may all affect the overall credit score.

The Lender – there are significant differences between lenders and how they handle bad loans.

The Loss – how big a loss the lender is taking on the short sale.

The Agreement – sometimes a short sale agreement between an Owner and Lender may provide some protection for the Borrower in exchange for cooperation in the short sale.

The State in which the property is located also plays a significant role in how the settlement is treated and reported.

Why would I bother selling my home short?

Choosing to attempt a short sale as opposed to letting the bank take the property back in a foreclosure may help homeowners retain some dignity knowing they’ve sold their home and they won’t be subjected to the social stigma of a foreclosure. But most importantly, under Fannie May guidelines, homeowners would be eligible to buy another home in 2 years instead of 5-7 years with a foreclosure.

The decision to sell your home “short” is difficult and can be overwhelming. If you are considering your options, give us a call. We can walk you through the process, discuss your specific situation, and offer advice based on our experience in your area and with your lender. And we’ll do all this with no obligation.

The Oasis Team is your local full service real estate team and we want to be your first call for all your real estate needs, both now and in the future.