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Short sale - come on, everyone's doing it!!

Short sale - come on, everyone's doing it!!
by Kaushik Sirkar, Chandler AZ REALTOR
Chandler Arizona Real Estate

You buy a home. You need to sell the home. But for whatever reason....the home decreased in value or you borrowed too much against the home - you owe more than the home is worth. You would just have to remain in that house until you achieved a better equity position. But wait, oh, you lost your job also? Can't make the payments anymore??? Very bad situation. In the past, you likely would have been forced into foreclosure.

Nobody wants their home foreclosed upon. Its a horrible process. It ruins your credit and worst of all, you lose your home. Guess what - banks don't want to have to foreclose on your home. They'd much rather you keep paying them interest. Foreclosures are EXPENSIVE for banks costing on the order of 10's of thousands of dollars.

Ahhh, this leads us to the latest of 'trends'. The short sale! Say you are in trouble with your home ala the examples above. Instead of going through all the costs associated with a foreclosure, the bank may just be willing to forgive a little bit of your debt, likely the delta between how much you owe and what the home is worth.

As the market continues to be 'sluggish' more and more people are finding their homes are worth less than what they owe, the short sale continues to grow in 'popularity. See this article from the Arizona Republic. Though short sales technically aren't tracked as a separate category - they are recorded as regular sales - their numbers are definitely on the rise especially in Arizona. Agents and consumers need to be aware of this and use it when applicable!

Thanks for Reading :)

Kaushik Sirkar, Chandler AZ REALTOR
Chandler Arizona Real Estate

Posted by Kaushik Sirkar on 07/08/2007 08:57 PM

Comments (15)

short sale, arizona real estate, chandler real estate, phoenix real estate

This post has been included in Arizona Information

15 Comments on Short sale - come on, everyone's doing it!!

JUL

2007

Nice post Kaushik, and a good link to the article.

Short sale should be the absolute last choice. We as Realtors need to do everything we can to help our clients avoid this outcome.

Bill Roberts

Last choice is forclosure.

i think this quote is correct.

"Most lenders prefer short sales because foreclosures cost them time and anywhere from $30,000 to $50,000 per house in legal, appraisal, marketing and servings fees. A short sale gets a home off their books and typically costs a lender less than a foreclosure."

Nice article.

Thank you, Kaushik. Very timely, and we have to approach it with dignity. Great post!

While it's not an easy task and you really have to have good negotiating skills, be resilient and tenacious, it is the way to help those who are upside down and have to sell. Don't forget the short-seller's tax consequences...

Good article.

Kathy Howe

JUL

2007

Kaushik

The short sale has become all too common here is SW Florida.

I agree, in Florida the short sale has now become a way of life.

Kausik,

I'm coming across this more and more. Just the other day I heard about an investor who will be short selling on 4 of his units. FOUR. Wow. All with different lenders I would think. I can't imagine the same lender doing this.

Thanks,
Shailesh

Kaushik, we do have Short Sales going on here in Connecticut, but not any where the extent that it is happening in Florida. Yes Short Sales are preferred to foreclosures, but they take forever and the banks are a pain to deal with. The best thing is to stay out of either one, because neither one is a pleasant experience.

I talked to my lender friend about doing one for one of my sales. She said that there still is a possibility of the lender trying to come back for the difference, much like a re-po car, and that it looks almost as bad as a foreclosure on their credit. She too has seen them on the rise, and it is a slightly better option than foreclosure.

Lexa

JUL

2007

Rob is correct - a short sale is actually the 2nd to last choice. The last choice is foreclosure.

JUL

2007

Have you listed our helped purchase a short sale? We've run into a number recently, but have found more dead ends than opportunities. Do you have any insights?

Short sales are a different monster. I see more and more agents take them, just for the listing. You are no longer dealing with an individual, you are dealing with a bank, they have to approve the sale. So the seller owes 250K on a house, the bank agrees to Shortsale for 190K, relieving your client of the forclosure proceeding? The client does not just walk away. They are still typically due the balance of the debt due. They are also liable for taxes due on the profit the "incured" from the short sale.

Shortsales are long processes and very complicated. If you don't understand them, you do your client an injustise by handeling one. It's best to refer it out to an agent that handles them.

Couple thoughts-

1. The commission you expect is never what you agreed upon, rather you are the buyers agent, or the listing agent.

2. Should your buyer client want a house up for Shortsale, make sure the Listing agent has authorization from the bank to actually have the house listed for short sale. Once again, its a complicated process. Should your seller suggest such a thing, make sure you talk to the bank and submit the paper work required for a shortsale.

I've seen alot of time that agents will put in the MLS that its a shortsale and the bank has no idea. Its actually pre-forclosure.

JUL

2007

Thank you for your insightful article ... as pointed out in several comments, these are complicated and if you represent the buyer, there's a chance, the bank may reject the offer ... if you represent the seller, make sure they understand there are drawbacks with short-sales. The bank may allow the property to be sold for less than what's owed - but then there's the balance due - if forgiven by the bank - it's tax-able income - or the seller may still owe the balance and have to make arrangements with the bank to make payments on the difference.

I recently represented a seller who lost her job and was unable to keep up the mortgage payments. We discussed a short-sale and she decided that foreclosure and subsequent bankruptcy was her best option.

Virginia's real estate market is slow and we're seeing short-sales everywhere! My biggest complaint with the MLS and agents - some of them are not disclosing that the property is a short sale!!

JUL

2007

Good point Chad. We are seeing these errors in AZ re: preforeclosure versus a true short sale. If the Bank has not agreed, your buyer may see a rejection regardless of a full clean offer.

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