Short Sale Questions and answers.
There are many questions I get from home owners every day wanting to know more about short sale. Some of the most common are:
- “Is short sale the best option for me?”
- “Will I owe money after a short sale”
- “How will short sale affect my credit?”
- “Who can help me with short sale?”
- “What’s the difference between short sale and Foreclosure”?
There is a lot of confusion about what benefit a short sale has over foreclosure and why it can take so long to get approval from the bank. Well this should help answer some common questions.
What is short sale?
A successful short sale is when the Banks or Lien holders that hold the note against a home that has negative equity agree to sell the home for less than the principal balance on the mortgage. The bank in first position will negotiate with any secondary lenders, other liens or judgments against the property, and the buyer. If an agreement made between all parties and all documents have been filed correctly, a short sale may be possible.
Who qualifies for a short sale?
Any home owner that has negative equity and has or will be experiencing some kind of financial difficulty. A qualified home owner will need to prove to the lender that they are unable to keep up with their mortgage payments. An experienced short sale Realtor can help with qualifying a home owner in need of help at no cost to the home owner.
Who to contact for help?
The first thing a home owner in need can and should do is speak to their lender and ask for their options. If no luck the next step is to contact a Realtor that has experience with short sales. It’s important that the Realtor has experience with short sales or they have a short sale department that coordinates the sale. A Realtor with little or no short sale experience should not take on the task without help from a reputable short sale coordinator. A short sale transaction is more complex and is very time consuming compared to a regular sale. Incomplete files will not be reviewed by the lenders and the lenders do not call and ask for correction. If a file is incomplete and not corrected the home will more than likely go into foreclosure.
Short sale vs. Foreclosure?
It is best to avoid foreclosure by far. If a home go’s into foreclosure the home owner will have much more debit and they will still be responsible to pay it back. Foreclosure has a greater negative impact on credit and will stay with the home owner for much longer than a short sale. With a successful short sale the sellers, lenders and buyers negotiate the sale and the lender relieves the seller from most if not all of the debit.
Why would a Bank accept a short sale and take a loss?
In many cases a distressed home owner gets to a position that they cannot afford to pay their mortgage anymore and they stop paying completely. After the 3rd delinquent month the homeowner will receive a notice of default and that is the point the foreclosure processes clock starts ticking. Once the seller or the sellers Realtor brings a purchase contract to the table, the bank at its own desertion will halt the process while they review the numbers. The bank must then decide the most economical procedure to remove the property from their books with the least amount of expense. A foreclosure is a costly and time consuming procedure and the bank must take into consideration the cost of doing so. Let’s look at it from a banks point of view!
Bank:
The Mortgagee “The home owner” has stopped making payments on our investment! “The mortgage” It is now costing us money daily instead of making us money. OK we have tried to recover the delinquencies with no luck so start the foreclosure procedure as agreed in the loan documents they signed.
Meanwhile the distressed homeowner has seek-ed help from a Realtor. The sellers Realtor has aggressively marketed the property and has procured a buyer. The Realtor has also gathered all the correct document and forms necessary to submit to the bank for review.
Bank:
The Bank now reviews the offer and compares it to the market value of the property. No matter what, nobody in their right mind is going to pay more than market value. The bank has limited options.
- Option 1) Foreclose on the property spending thousands of dollars doing so and try to sell at a public auction with no guarantee it will sell at market value. If it doesn’t sell at an Auction hire a Realtor to manage and maintain the property at additional expense.
- Option 2) Take the market value or close to market value offer and be done with it.
The bank wants out just like you do at this point and chances are it can be a better situation for both seller buyer and the bank if a successful short sale is negotiated.
As always Contact us for advise we are here to help.
