The Truth About Short Sales
What is a short sale?
According to the National Association of Realtors, A short sale is a transaction in which the lender agrees to accept less than the mortgage amount owed by the current homeowner. In some cases the difference is forgiven by the lender; in others the homeowner must make arrangements with the lender to settle the remainder of the debt. This remainder is known as a deficiency. In all cases the borrower must prove a financial hardship.
What qualifies as a financial hardship?
The list of financial hardships includes: mortgage increase, loss of employment or income, medical expenses, divorce/separation, job relocation, repairs the homeowner cant afford, death of a family member, too much debt; among others.
What are the advantages of a short sale?
The primary alternative to a short sale is foreclosure, sometimes followed by bankruptcy. Foreclosure creates a huge impact on your credit score and its consequences can easily last 7 years or longer. Often, the impact of a short sale is minimal.
Are short sales complicated?
Complicated no, detailed yes. You will have to compile financial information and complete some bank paperwork. After that your agent will handle the negotiations with the lender and the sale of the property. You should be prepared however short sales do not usually close quickly. The Home Affordable Foreclosure Alternatives (HAFA) initiative includes guidelines to minimize the total time necessary to complete a short sale but are not proven yet.
Can I continue to live in my home until the short sale is completed?
Usually you can live there until closing and are required to maintain the property as if you were making your mortgage payments. You may also continue to receive collection notices.
What about the deficiency amount?
Depending on HAFA guidelines and your states laws, the lender may or may not pursue the borrower for any deficiency amount. Consult your tax advisor regarding any tax ramifications of your sale.
What about the $1,500 relocation refund Ive heard about?
One facet of the HAFA guidelines allows for qualified homeowners to receive $1,500 from the short sale proceeds to help with relocation expenses.
Can any Realtor handle the short sale process on my property?
Yes and no. While any licensed agent can work your short sale, lenders prefer to work with agents who have completed short sale training and are experienced in the process. The process requires patience, constant follow-up and excellent negotiating skills. I completed my Certified Distressed Property Expert (CDPE) designation in Summer 2009 and have worked both sides of short sales.
Who pays the Realtors sales commission?
In both short sale and foreclosure transactions, the brokerage fees are paid by the lender.
How do I get the process started?
Give me a call or email me. Well set up a time to talk about your particular situation and start organizing the required paperwork. I promise to make the process as painless as possible.
Rick Richardson has been a full-time Realtor since 1994 and has worked all facets of single family and multi-family transactions.