What is a short sale?
A short sale is the sale of a home or property for less than what is owed on the property. The seller must have also experienced some sort of “distress” and must sell. (Example, the seller of a home in Daphne AL owes $250,000 and the house value has fallen and it’s only worth $200,000. So there is an immediate $50,000 shortfall plus closing costs). It does not necessarily mean that the property is heading into foreclosure.
Why is it sometimes called a potential short sale?
That’s because it is ultimately up to the seller’s lender to approve the sale. After all, it’s the lender who is taking the major financial hit here.
What qualifies as a distress for a seller?
Many, many things from personal to financial misfortunes, to simple changes in circumstances. One lender even has a checklist. Death, divorce, illness, expanding family, loss of job, reduction in pay or hours, even increased home owners’ insurance payments. Many short sellers have experienced a combination of one of more of these.
Can anybody who has had a change in circumstances qualify for a short sale?
No. The seller cannot have a lot of cash available, no substantial assets. Basically a seller can have just enough to get by.
Who sets the price?
The Realtor sets the price according to the market value. When there aren't a lot of comparable solds to determine price, the Realtor may start the pricing at what is owed on the property then systematically reduce it over time to demonstrate to the lender that the house wasn't being shown at the higher price and the market value has declined.
How long does it take?
Short sales used to have a reputation for being a nightmarishly long experience. But over the years the time it takes has been reduced to around 45 to 90 days.
Is it really better for the seller to do a short sale or to just let it go into foreclosure?
The general school of thought is that a foreclosure will result in a larger hit to a credit score than a short sale. The same holds true for deed in lieu of foreclosures (where you give the house back to the bank). This is because foreclosures are recorded at the courthouse and end up on your credit. Short sales typically are not. Also, a short seller should be able to purchase a home again within a shorter period of time than someone who has been foreclosed upon.
Does a seller have to pay anything in a short sale?
It depends. The lender can file a request that the seller repay all or part of the difference between the sales price and what is owed. In my experience I have seen the lenders forgive the debt entirely, and I have seen then lender write off around $100,000 and request the seller repay just $2,500 over a period of years with payments under $100 a month.
So what does a seller have to do to get a short sale going?
A qualified Realtor can guide a seller through the short sale process. Generally, the lender will request the seller write a letter outlining their personal, work and financial history and why they are requesting a short sale. The lender will also request copies of bank statements, pay stubs, and tax records.
Sounds like a lot of work?
Yes, it's some for the seller, but even more for the Realtor who has the house listed. But it's an good option for homeowners in financial distress who need to move.
If I've received a default notice is it too late to do a short sale?
It depends on where you are in the foreclosure process and whether you meet the short sale criteria.
Do I have to be late on my mortgage payments to qualify for a short sale?
I cannot tell you to not make a mortgage payment, but the general school of thought is you have to be late or make a partial payment for a lender to consider a short sale. I have heard of one lender that doesn’t require you to be behind on payments to do a short sale. But be careful here: If you are late too many months, you will trigger the big, bad foreclosure process which can complicate the short sale.
If you think you may qualify for a short sale and need more information, feel free to call me at 251 591-2411.