As I write this article about short sales, I am doing so with fingers crossed. I have been waiting for about seven months for one of my short sale listings to close. The buyers have been very patient but they are beginning to get restless.
But first one may ask, “What is a short sale?” When the loan amount is higher than the market value of a home, the seller cam do a short sale with the lenders permission to sell the home at a loss to the lender.
The lender agrees to take less than the buyer owes on their mortgage. This has been very common over the last few years and could continue to be a necessary influence on our marketplace for several years to come.
According to the information from the Certified Distressed Property Expert site the following three items must be proved before a seller can qualify for a short sale.
- Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- Monthly Income Shortfall – In other words: "You have more month than money." A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
If a homeowner is able to prove one or more of the above they are able to apply for a short sale. This is not a simple process. The paper work and the process are exhausting and you will do better if you have someone with experience walk you through this process.
Why do a short sale? This is an opportunity for sellers to get out from under a mortgage that may be crushing them. The ding to your credit may be less than a foreclosure and your time limit before you buy a home again may be shorter than when you have foreclosure. This is a great way for a homeowner to exit a property without the stigma of a foreclosure.
Many homeowners have never missed a payment and yet a short sale could be on the horizon.
How much longer will we be dealing with short sales? It is impossible to know how long “short sale” will be a part of the real estate vocabulary. Sellers who bought or refinanced their homes in early to mid 2000s did so at the peak of the market and could at some point face a short sale.
During the time early to mid 2000s, buyers were able to do 100 percent financing. A large percentage of buyers got interest-only loans and had first and second mortgages. With the high number of second mortgages most short sales will require approval on a first mortgage and a second mortgage. This is not to say that a traditional loan made in 2006 with 20 percent down is immune from a short sale.
The short sale process can take months. This is a very challenging time for buyer and seller. Not all buyers could or should consider buying a short sale. The buyer needs to be made aware of all the time and the patience required to reach their end result. However, for the right type of buyer this can be an amazing opportunity to purchase a beautiful home below market price.
Anyone who has had to deal with hardships and the challenges of this economy must understand what a painful decision this is for homeowners, who should be able to move on without the burden of a mortgage they can no longer afford.
Are you considering a short sale? Tell us in the comments below-