Are you “upside down” or “underwater”? These new housing market terms produce negative thoughts, no? With all the due diligence you put into the purchase, and all the business smarts your lender put into it to accept the home as collateral, it’s a strange thing indeed that the deal went bad. But, it did go bad. In fact nearly 20 million homeowners in the US are facing this scenario right now. It’s psychologically bad for all of them and it’s financially bad for those who must sell now due to a job loss, reduction in pay, divorce, death, etc. For them, it’s a disaster.
A short sale can be a great solution for such people. The lender has to approve such a sale because they have accepted the home as collateral for the debt. How the sale works, what happens to the “short” amount, what you tax liabilities are and how to be protected from future deficiency lawsuits are the right questions to ask. Let me start with question one, how they work.
This is How a Short Sale Works
The short sale is conducted in exactly the same manner as a traditional sale, with one important additional step. When a suitable buyer is found your “application for a short payoff” is submitted, along with the offer, to the lender. The application includes an explanation of the hardship that led you to this situation.
The HUD-1 Settelement Statement also shows payoffs for junior lienholders like 2nd Mortgages, tax liens, etc.
The lender’s Loss Mitigation department evaluates the application. They get their assessment of the value of the home and the buyer. Generally, this process takes about 30 days but it can take much longer. The longest short sale I have worked on took 26 months. The fastest one took 60 days from listing to close.
There are common misconceptions – myths – about short sales. Here are the most common ones I hear.
Myth #1 – My Lender Will Foreclose Rather than Bother with a Short Sale
The foreclosure process is lengthy and expensive. The short sale process is short and fast. So, it’s the lesser of two evils. If all things are equal, the bank gets their money months faster through a short sale.
Myth #2 – You Must Be “Late” on Your Mortgage to Negotiate a Short Sale
Wrong! Banks want qualified buyers and reasonable offers. Whether or not the seller is asked to bring money to the table (or sign a note for some portion of the shortfall) is another factor that varies by state. But, the default status of the homeowner is not a factor.
Myth 3 Short Sales take so long that the hme is often lost in foreclosure before approved
Many homeowners fail to pursue short sales believing that they take too long and that they won’t have enough time to complete them before foreclosure period ends. Actually, lenders extend the foreclosure process to have enough time to evaluate your short sale deal. I have succeeded in short sales when we submitted the deal for the first time just 2 days before the trustee sale.
Lenders appreciate the advantage of a sort sale. Not only is it better for them financially and politically, it is better for the owner (faster credit score recovery) and better for the community (vacant, foreclosed REO homes). Therefore lenders typically welcome a short sale application as an alternative to foreclosing and will delay the foreclosure process to evaluate your application.
4. Embarrassment
O.K., maybe two years ago in snooty neighborhoods…but today? You must be joking. google how many homes have sold short in your state or county. It’s all around you and it’s a function of the market not your personal anything.
Myth #5 – Buyers are Not Interested in Short Sales
The opposite is true. Smart buyers and smart agents know that there are great deals to be had in short sales.
Short sales will continue to be an important part of the housing market stabilization. They are better than foreclosure, for all parties involved.
Want to find out more about actually getting short sales done? Visit Rockwood’s site at Home Loan Modification Get a totally unique version of this article from our article submission service
