• NEED ASSISTANCE?
  • First Name (required)
  • Last Name (required)
  • Email (required)
  • Phone
  • Question/Comments

Short Sale Advantages

Are you having difficulties paying your mortgage?
Did you lose your job?
Are you behind on your payments?
Are you upside down?
Is your adjustable rate mortgage adjusting and you can’t make payments any more?

A short sale may be your answer. Call today or fill out the form below to be contacted.

With many people facing the very real threat of foreclosure, many are looking for ways to avoid it. One option, and a topic that has garnered a lot of industry interest, is a real estate short sale. Normally reserved for stocks and other finance-related transactions, short sales are becoming an increasingly popular, and common, foreclosure avoidance tactic for homeowners.

What is a short sale?
A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

A short sale typically is executed to prevent a home foreclosure. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency.

Any negative side affects?
It should be noted that there are still negative ramifications for short sales, even if less damaging than those associated with foreclosures and/or bankruptcy. For example, a short sale homeowner's credit will still be adversely affected by settling with the lender. In fact, according to an article by Elizabeth Weintraub on About.com, the effects on credit are about the same for short-sale and foreclosure and could drop a sellers overall score by as much as 200-300 points. However, short sales do carry less negative effects than foreclosures. Short sale sellers are widely seen as less risky than foreclosed sellers. Case in point, Fannie Mae recently adjusted their guidelines to dictate only a two year waiting period for a short sale seller to buy another

primary residence, while they extended the waiting period for foreclosures to five years.

Short sale is not the guarantee that the bank will accept the offering price on the property and can take anywhere from 90-120 days to receive an answer from the lender whether they are or are not accepting the deal.

What information will the bank need?
The lender will also ask for financial information about the borrower. Sort of a backwards loan application, the borrower must prove that he/she is indeed unable to afford the payments. The borrower must show that he/she has no other source of income or assets to repay the loan. This process may involve as much, if not more paperwork than an original mortgage application! This information is only good for 60 days and must be resubmitted if an offer is not received in that time period. The borrower should submit a “hardship letter”, which is basically a sob story about how much financial trouble the borrower is in. This may require a little literary creativity, and some help on your part. Don’t lie; just paint a picture that doesn’t look good. Remember a person will be reading your letter so appeal to their emotions. Finally, the lender generally wants to see a written contract between the buyer and the seller. The lender wants to make sure the seller isn’t walking away with any cash from the deal. Generally, the contract must be written so that the buyer pays all costs associated with the transaction, so that the “net cash” to the seller is the exact amount of the short pay to the lender. A preliminary HUD-1 settlement statement is often requested, which can be difficult, since many title and escrow companies simple won’t prepare one in advance of closing. An experienced short sale agent, such as myself, will have the necessary relationship with title companies to have them prepare this document.

What else can I expect to happen?
If you are a buyer, don’t be surprised if your first short sale bid is rejected. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you steal. Many short sales fall through if the BPO comes in too high, this is often the case. You can’t pull the wool over a lender’s eyes – if the property isn’t in need of serious repair, it is unlikely you can convince the lender the property is worth a whole lot less than the appraised value. The lender also has guidelines on how much they are willing to accept based on the current market value. This is where most inexperienced short sale agents fall short. They get anxious to close a deal and submit the first offer they receive. An experienced short sales agent knows each bank's threshold and can help you negotiate with a buyer and counter offer to bring them up to an amount the bank is willing to accept. Remember a short sale approval can take months and you may not get a second chance. Don't put your financial future at risk!

If you have any further questions, please don't hesitate to contact me directly.