What is a Short Sale?
A Short Sale is when your mortgage bank accepts an offer on your property for less than what you owe, i.e. the bank comes up “short” and eats some , or all, of the remaining debt.
A short sale is an alternative to foreclosure (an much easier on your credit history) and could work for you if:
- You are not able to re-finance your current loan
- You are not able to modify your current loan
- You are behind on your mortgage payment
- You have no positive equity in your home (i.e., you owe more than it is worth)
- You simply can’t afford your home any longer
The benefits of a Short Sale
- Eliminate or reduce your mortgage debt
- Avoid the negative impact of foreclosure
- Start repairing your credit sooner than if you went through a foreclosure
- May be able to get a Fannie Mae mortgage to purchase a home sooner (in as little as 2 years) than if you went through foreclosure (at least 7 years)
What is the process for a Short Sale?
If you qualify for this option, the process is similar to a normal real estate sales transaction. You will work with a real estate agent to market and sell your home. However, your mortgage company will also be working with you and your real estate agent every step of the way to:
- set the sale price (based on current market value),
- collect financial information and negotiate with other lien holders (i.e., your second mortgage company) if applicable,
- review acceptable offers,
- agree to the terms of the sale once a buyer is in place, and
- work with the buyer’s real estate agent and mortgage lender to finalize the sale.
In some cases, you may be eligible to receive relocation assistance to use toward your moving expenses and to make the transition to new housing easier.
A Short Sale may take up to 120 days, but this could be shorter or longer depending upon your specific situation. If you are unable to sell your home, you may be able to transfer the ownership of your property to the owner of your mortgage (also called a Deed-in-Lieu of Foreclosure).
What Happens to my credit?
As Scott Mitchell on Debtkid.com states, “a short sale will negatively affect your credit, but not nearly as much as a foreclosure or deed-in-lieu.” He goes on to say that it’s a matter of a loss of 200-280 points on your FICO score for a foreclosure, vs. 75-125 for a short sale. Most likely, a short seller’s account will be marked as “paid in full for less than the full amount” and/or “settled” after settlement.
Also remember, once a home owner is more than 30 days behind on his mortgage payment, the lender can report it to all the credit bureaus. This directly affects your credit.
We encourage you to contact a Credit Scoring expert to help you improve your credit score after short selling your property.
Why do banks say yes?
Lenders prefer to do a short sale rather than foreclose on a property, because once they foreclose on it, it becomes part of their inventory and thus a liability. It creates a huge expense for the lender.
Why would anyone buy a short sale?
According to the Bloomberg article “Short Sales Surpass Foreclosures as Banks Agree to Deals” by John Gittelsohn, Banks have become more agreeable to selling houses at a loss and that “The Federal Housing Finance Agency ordered loan servicers to respond to all short-sale offers within 30 days, and approve or reject them within 60 days, in an effort to expedite a process that can take months longer than conventional home sales, the agency said in a statement today.” So, not only have many lenders hired more staff to handle short sales, they have become more streamlined in their process from application to approval.
Also, it can be worth purchasing a home listed as a short sale because many times it will actually sell for less than current market value, making it attractive to home buyers.
83% of our short sales have closed for list price or above. In one stunning example, we sold for $50,000 more than the lender approved list price! Believe it or not, the sold price was still slightly under market value.
One more crucial ingredient in a successful short sale transaction is a knowledgeable listing agent/team, as they are the main point of contact with the bank, handling all the negotiations and procedures. This is impossible for a buyer to impact, however. Buyers, make sure your Realtor® asks the listing agent the right questions before making an offer.
CONTACT US and we will walk through all the steps with you, as we have with many other short sale clients. We have a 100% success rate!