What is a Short Sale?
A short sale is the process by which a homeowner sells their home for less than what is owed to the current lender or lenders or when the cost to sell a home does not cover the current balance due the lender. A short sale is one option for homeowners who are facing foreclosure. It's not quite as easy as it sounds, but not as difficult as many believe.
Properties sold short are always subject to lender approval. Many banks require the home be listed on the local MLS by a Realtor. I have had some banks tell my clients they have to have the home on the market for three months before they will consider a short sale.
Although banks will always do their own BPO's and appraisals, when you are listed with a local realtor, we can judge the market based on price of recently sold, through price reductions and feedback more thoroughly. This is crucial data we can present to the bank on your behalf when we do receive an offer.
The homeowner who decides a short sale is an option for their circumstances will need to complete a package which is required by the bank with several documents, including, but not limited to:
- 2 years tax returns
- 2 pay check stubs or profit/loss statement for self employeed
- Hardship Letter - detailing the circumstances which led to the default
- Authorization to Release Information - allows the bank to speak to your Realtor
- Financial Worksheet
- Listing Agreement
If the home was financed using an FHA loan, there are additional steps which need to be taken: FHA loans have specific guidelines for participation in the short sale process. The homeowner must adhere to the preforeclosure sales procedure for FHA loans, which includes homeownership counseling. Homeownership counseling provides the homeowner with information on all their options. You may find an alternative to foreclosure which is better for your particular situation.
Search here to find a HUD approved Counseling Agency in the Indianapolis area.
If you are facing foreclosure and believe a short sale may be an option for you, contact me for a confidential consultation.
If you are behind on payments a short sale is the way to go. Make sure you call an agent that knows what they are doing.
we are seeing about 60% of the properties sellign in our market are short sales. its definatly something as real estate agents we will be dealing with for a long time
Mike - Exactly - there are too many agents practicing with a homeowner in need of a short sale.
DeBordieu - Wow - 60% is a good/bad number depending on how you look at it. I hear many agents say they can't get a short sale closed. When the homeowner needs a short sale, it's good you are seeing them close.
Yesterday I read somewhere (on someone's blog) that the hit your credit takes when doing a short sale is the equivalent of a foreclosure. I don't believe this is the case and am not even sure where someone would get such an idea. One lender I mentioned this to shortly afterward just laughed out loud and said that is definitely incorrect. Is it your understanding (as it is mine) that doing a short sale results in a major ding (to the tune of about 100 points) on the homeowner's credit, whereas a foreclosure more or less destroys for credit for years to come? Do you have a more accurate description of the difference between these two actions on one's credit? I would like to clear up this issue once and for all and put any doubt in my mind to rest for good. The short sales I've worked on for my sellers have been an enormous amount of work. I should hope - for both our sakes - that all that hard work has not been in vain...
My understanding of the point reduction in credit score is, it is not solely derived from whether or not a person has a foreclosure or a short sale. The determining factors affecting a persons overall credit score is generally arrived at before the settlement of either a short sale or foreclosure. For instance, a person who is trying to stay afloat may miss their payment for three months, then make up a payment; pay for a few months, then miss two months, then another 30 day late, then a payment. These 30-60-90 day lates are enough to financially cripple a homeowners ability to qualify for anything. Add a foreclosure OR short sale and you could easily end up at the bottom of the credit score ladder. Climbing back up is a long haul.
Our work is not in vain - There are more devastating effects of a foreclosure than the reduction in credit score. You have prompted me to post more on the subject........email me and I will send you some info. Paula (at) HometoIndy.com
Short sales do seem to be more difficult this year than last, phone calls which go unanswered, lost files, people who don't know what they are doing, both in the RE field and at the bank.
It is my hope we will see legislation or guidelines for short sales so we can really begin to help both homeowners and banks.
Thanks for all of the useful information about short sales. It seems there is still a great deal of confusion in the world of real estate in this area, particularly since so many agents have taken a crash course in this specialized area since the economic downturn.
Useful information! I have a lot more to learn about this subject. Do you have any information on the IRS' current practice of taxing the buyers for the forgiven portion of a short sale settlement?
Short Sales are a horse of a different color. Each one has variables and twists and turns that can not be anticipated. Short sales require a lot of patience on any buyers part.
Thanks for more information on Short Sales. I hope more and more people come to know of them because they can help both buyers and sellers AND us REALTORs!
what is a short sale? Great description Paula, this will help many people in the Indy area avoid foreclosure! http://tinyurl.com/ybvoje8
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