Short Sale Q & A

Short sale is a term that really had little if any use during the period when real estate was spiraling out of control in many parts of the country. Many people still ask me questions about short sales. Here are a few of them: 

What is a short sale? Short Sale is the negotiation with a lender to accept less than the outstanding mortgage loan when the homeowner is unable to continue making their payments, and the balance of the loan is more than the market value. 

What causes a short sale? It can be caused by job loss or significant loss of income, relocation, an adjustable rate mortgage "reset" to a higher rate, health issues, divorce, or some other reason that would cause the borrower to be in an "upside down" position with depleted assets.  

Why would a lender agree to lose money on a short sale? Lenders will sometimes agree to accept less in order to avoid the expense of foreclosure. Their decision is based totally on the best course of action to limit losses, known as loss mitigation. They are not concerned about the welfare of the borrower. Nothing personal, just business. 

Why would a seller want to agree to a short sale? Having a foreclosure on your credit report is topped only by bankruptcy in damaging your score. A short sale will lower your score by 80 to 100 points, and you may qualify for a new mortgage in as little as twelve months. Foreclosure will likely drop it by over 250 points, and could cause you to wait three to five years to qualify for any reasonable mortgage. You will still lose your house, but at least the damage to your credit will be greatly reduced. 

Is there anything I can do to avoid a short sale or foreclosure? If you can prove that you can support a loan modification, call your lender and request that they modify the terms of your mortgage. This is the best alternative, but banks are becoming more reluctant to agree to modifications. They are finding that it costs money to modify, and statistics are showing that a high percentage of modifications are failing again. 

Who should I call to handle a short sale? Short sales should never be attempted by the borrower directly. Make sure that the real estate professional you select has received adequate special training in loss mitigation. 

When should I seek a short sale? Seek help if your payments start falling behind and you have no idea how to get them current. Preferably you should act before you are sixty days past due. Be advised that not everyone will be approved for a short sale. 

How long does a short sale take? It varies with the lender attitude. It can be as little as a few weeks or as long as a few months. 

There are five things the homeowner should NEVER DO:

•·         Never deed your property to a third party.

•·         Do not sell your home at a huge discount without lender approval.

•·         Never authorize a buyer to deal directly with your lender.

•·         Never pay "up front" fees to anyone!

•·         Do not do nothing, and expect the problem to go away.

It is a benefit to the homeowner, the lender, and the entire community to keep foreclosures from taking place if at all possible.