Short Sale Answers



Your Short Sale Questions Answered

With so many facing foreclosures, more and more banks are agreeing to short sales. However, many homeowners have heard bad, or outright false, information regarding short sales. What is more, they’re already cautious when speaking with their lender about their delinquent payments.

Q.    What is a Short Sale?

With a short sale, your lender agrees to accept less than the amount owed on your mortgage debt. Therefore, the proceeds from the sale of your home will fall “short” of your existing loan.

If they are taking a loss on the property, many wonder why a bank would accept a short sale. The short answer is that it makes sense. However, it involves far more complicated reasoning on their part. The loss that a bank incurs is far less with a short sale than with a foreclosure. In addition, an REO (bank owned property) is considered a liability on their part. The bank doesn’t want to have too many liabilities on their books.

Q.    Who qualifies for a short sale?

Comparables, a tool used by real estate agents to determine your home’s value, must substantiate your claim that your home is worth less than the unpaid balance on your mortgage. In addition, the homeowner must show that they are facing financial hardship and have defaulted on their payment or are near default.

Q.    Who pays your commission?

This is an understandable question and one that you may be concerned with. In many cases, when your bank agrees to a short sale, the seller pays nothing. Title and escrow fees, and even the Realtor® commission, are paid for by the bank.

Q.    Why would I want to short sale my home?

There are a number of reasons to choose a short sale over foreclosure. Many times, the negative impact on your credit is less with a short sale than a foreclosure. When you are in the position to purchase a home in the future, most mortgage applications ask if you have ever had a foreclosure.

Q.    How long does a short sale take?

Short sales vary in regards to time. Depending on the lender, they can take from weeks to 6 months. Those who are experienced in short sale mediation have sometimes developed strategies that cut through some of the red tape. Arguably, some say that the average time a short sale will take is 60 days. Again, each transaction is unique and the length of time varies.

Q.    I’ve heard of a strategic default? What is that?

A strategic default is when an owner finds that they owe more on their home than its current value. With this in mind, they decide that it would be in their best interest to simply walk away. However, there are consequences to a strategic default. First, you are choosing to default on your payment, and it will have an impact on your credit score. Secondly, voluntary foreclosure can affect your chances of qualifying for a mortgage in the future. Of course, the bank can file a deficiency judgment if they deem that you had the means to pay your mortgage but chose not to because of the value of your home. Attorneys and accountants are in the best position to help you with these decisions.

Q.    Are there other options available to me?

My team and I understand the complicated situations that homeowners find themselves in today. Therefore, we like to take time with our clients to discuss their options. At that point, we feel that they are in a better position to choose what’s best in their unique situation.