What is a Short Sale?
The basic answer is a property that sells for less than the balance owing on its mortgage. It can be any type of home, in any condition. If there is a mortgage balance that is greater than the market value of the home, that property is a short sale.
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A Short Sale is a Privilege, Not a Right
Not every property will qualify as a potential short sale. A bank must first agree to grant a short sale. Banks are under no obligation to approve a short sale and they will usually only grant a short sale if the bank feels it is in the bank’s best interest to approve the short sale.
It is in the bank’s best interest to approve the short sale if the bank will make more money through the short sale than to foreclose. It is estimated that banks might save 25% to 30% on foreclosure costs to grant a short sale over a foreclosure, but some investor guidelines make it more profitable for the bank to foreclose.
What is Necessary for a Short Sale?
Most short sale transactions are handled by real estate agents who specialize in short sales. There are 4 essential ingredients to a short sale; however, strategic short sales, those without a hardship, are also possible. What makes a short sale work are the following:
An underwater home
A willing short sale bank
A seller with a hardship
A buyer willing to purchase the home
What Role Do Real Estate Agents Play in a Short Sale?
It is wise to choose an experienced short sale agent who has closed at least 100 short sales. Here is what an agent does in a short sale:
Determines the type of short sale. There are many types of short sales, from Fannie Mae HAFAs to regular, non-GSE HAFAs to a traditional short sale, and a few more in between.
Gathers the required paperwork and submits the short sale package to the bank. Sometimes agents outsource this part of the process or they might hire a third-party to negotiate the short sale.
Helps the seller to price the short sale home. The price needs to be attractive enough to entice a buyer to wait for short sale approval but high enough to satisfy the bank’s BPO.
Puts the home on the market. The agent must submit all offers received to the seller. Some offers will be lowball offers because buyers don’t know any better.
Negotiates the short sale. Sometimes sellers will hire a lawyer to do the short sale, but often it’s the agent who negotiates with the bank on behalf of the seller.
Submits the short sale approval letter to the seller. Most sellers want a release of liability and no deficiency to do a short sale. State laws tend to govern the terms in the approval letters.
Sellers should always get legal and tax advice before completing a short sale.
10 Reasons to do a Short Sale vs. Foreclosure
1. A Short Sale is negotiated settlement with a Lender, as opposed to a Court Settlement
2. In a Short Sale, Brokers fees, Attorney’s Fee & Court Costs are paid by Lender
3. May be able to get moving expenses. Through HAFA (Home Affordable Foreclosure Alternatives), you may be eligible for a $3,000 incentive to avoid Foreclosure by pursuing a Short Sale. In addition, some banks are now giving up to $30,000 to do a Short Sale. Note: Not all loans qualify for this program.
4. Credit repaired in approx 2 years or less vs. 7-10 years with a Foreclosure
5. In most cases, we can require the bank to waive its right to deficiency judgment
6. Can possibly avoid bankruptcy with a Short Sale
7. Control your move out date with a Short Sale
8. Secondary liens are negotiated and paid by the Bank in a Short Sale vs. Civil Court trials
9. Relieve financial and emotional stress
10. More control of your life and less hassle!
We have the experience necessary to work with local and national lenders to negotiate viable options. We understand the legal and financial complexities involved in such situations. We have the compassion and determination to help you work through your difficulties.
We can be your advocates, your representatives, and your friends you can count on.