Do You Qualify for a Short Sale?

The original concept of a short sale is when a home sells for less than the mortgage(s) on it and the homeowner does not sign a promissory note or bring money to closing. Many homeowners in Orange Park and Fleming Island have not one, but two or three mortgages, including a home equity line of credit.  You may be considering a short sale, but the question is - Do You Qualify for a Short Sale? Not every Clay County homeowner does. Here's the thing:

The rules for short sales keep changing

If a home is not sold as a short sale and goes into foreclosure, all the mortgages are wiped out except first mortgage, so any second or third mortgages are a total loss to their respective bank.  Second and third mortgages are often held by different banks from the first mortgage. A year ago a second mortgage would accept from zero dollars up to $1000 payment and sign off on a short sale. So would home equity lines of credit. Not now.

Today, the second lienholder usually demands $3000-5000 from the first mortgage bank to agree to a short sale, and they may demand sellers sign a note agreeing to pay back a portion of the loan. Banks have figured out a way to recoup some of their huge losses by demanding some cash now and a promise to pay later. Additionally, some homeowners are also required to bring money to the closing if the bank determines they are in a financial position to do so.

So who qualifies for a short sale?

Homeowners with a genuine hardship who owe more money than their home is worth due to: job loss, medical reaons, divorce, or relocation that deplete a homeowner's assets are considered by banks to be genuine hardship. In this instance, a bank will typically agree to a short sale and not demand cash at closing or a promissory note.

 

So who does not qualify for a short sale?

1. Homeowners who realize their home is worth less than what they paid and they just don't want to make the payments anymore.

2. Homeowners who have significant assets and income.

3. Homeowners who have bought a second home.

4. Investors.

Homeowners who qualify for a short sale as of now will usually not be asked by the bank to execute promissory notes for any balance owed. Homeowners who do not qualify for a short sale will either sign promissory notes or the property will go into foreclosure.

What should you do if you are behind in your payments?

If you are behind in your payments, call your bank(s) and keep communications open. Ask to speak to someone in the Loss Mitigation Department. You may qualify for a loan modification or another program. Seek the advice of your financial advisor, accountant and attorney to give you all the information about your particular situation.

Contact an experienced short sale real estate professional to determine what your home may sell for. You may contact us for a consultation to discuss your options.

So should you do a short sale or not?

It depends. Short sales affect your credit for two years. After two years, you may buy a home again. Foreclosures impact your credit for five years. Bankruptcy has a more negative impact than a short sale also.

About 20% of homes on Fleming Island on the market are short sales or bank owned and 38% of homes in Orange Park are short sales or bank owned, so you're not alone in the decisions you are facing. Once you speak with the bank and other advisors, including an experienced short sale real estate agent, you will have enough information to make a good decision. You will know whether you qualify for a short sale and if you should consider one even if you do not qualify. Give us a call at 904-673-2308 if you want to get together to see if we can help you navigate whether or not you qualify for a short sale.