Short Sale Information

Having trouble making payments on your house? Are you upside down but really need to sell? Do you wonder what a foreclosure would do to your credit report if you just walked away from the house? These are real questions that I get asked all too often. Many owners are in a dilemma just like that and don't know where to turn. Let me suggest that you give me a call and see if I can help you. But first let me briefly explain what short sales are all about.

A short sale would occur when the sales price of the property is inadequate to pay off the first mortgage, second mortgage or other liens and closing expenses. That is, you are "upside down" on your home. We often hear that terminology as it relates to automobiles, but very seldom when it comes to houses. With the decline in values in so many markets across the country, coupled with the fact that so many people took out loans at 100% of value or even 105% of value, it's pretty easy to see how the error is compounded by the drop in prices in homes.

A bank is not required to do a short sale. It needs to be negotiated. There are certain rules or guidelines that they like to follow. I'll share some of those now. There needs to be a hardship on the seller's part; loss of job, major reduction in income, disability or some other item like that. Generally, the lender is going to want to see that the seller has no other assets that can be used or sold in order to pay off the loan. If you have a high net worth, you're not a good candidate for a short sale. Your Realtor as well as an independent Realtor that the Bank selects, will have to give a substantiated opinion of value that shows the decline in value of the property. The bank will want to see that the home has been properly marketed with a Realtor and that it is indeed currently on the market. Additional documentation that the lender will require after an offer comes in is bank statements, savings account or stock brokerage account statements, copies of pay stubs and tax returns.

When an offer does come in, remember the seller is still the owner of the property and it is the owner who gets to choose which offer he will accept. Since the seller is not going to get any funds at closing the goal is really to get a property sold as quickly as possible and as close to the broker's opinion of price as possible. Occasionally in very hardship situations, the bank will let the seller have about $1000 for "moveout expenses". A short sale can take quite a bit of time to get approved. I recently did a short sale transaction that was 43 days from beginning to end with both a first and second mortgage. That is almost record fast. Generally 60 days to six months is fairly typical. From the buyer side, a very patient buyer is required because there just is no certainty as to a closing date up until about two weeks prior to closing. Many times the buyer will be required to perform their inspections and other due diligence tasks before we even know the bank will accept a short sale. That said, there usually can be some pretty good deals out there in short sales and so to play that game you need to recognize that you do put some money at risk. For the buyer that needs to close fairly quickly but is also looking for a "bargain", then that buyer needs to be looking at homes that have already been through foreclosure and are bank owned. We can help a buyer find those as well.

How does a short sale affect the seller's credit? It'll definitely be a ding on your credit report, but not nearly as bad as a foreclosure. The short sale will show up on the credit report.

If you would like to discuss your situation with me I'd be happy to have a private meeting or telephone consultation to review your particular circumstances. When dealing in a short sale situation, the experience of the listing broker is especially paramount.