What's a Short Sale?!
Even if you're new to the business, this would seem like a silly question. The majority of the currently real estate market consists primarily of short sales. On almost a daily basis my wife and I are explaining to consumers what a short sale is. This is something we're more than happy to do. After all, it's our job to educate the masses on how we work and what their options are in selling their homes. What gets me (every single time) is when an agent who is active in this market, truly doesn't understand what a short sale is. I was speaking to an agent recently, an agent who is well versed in real estate and would be considered a "veteran" in the game. I asked this person if the subject listing was a short sale (even though you're supposed to post it in the mls, I still ask). This person replied "well, they're selling it for less then what they bought it for... so yes I guess you could say it's a 'short sale'".
... whoa!
Seriously?! ...
Because of this, I've decided to post a blog about short sales with typical questions that consumers ask us.
Q: What is a Short Sale?
A: A short sale is a sale in lieu of foreclosure. Due to current economic conditions, many people are faced with financial hardship and are no longer able to make their mortgage payments. The typical solution to this type of hardship would be to sell the home and get out from under the mortgage. Unfortunately, the real estate market has turned soft and prices have fallen considerably. In order to sell their homes, people would have to come out of pocket with large sums of money in order to get out from under their payment. Therefore, a short sale is the sale of a home at current market value, resulting in a "short" payoff amount on the home. This requires extensive negotiations with the lien holders, to get them to accept these "short pays" and to still release the note on the home.
Q: What are the consequences to doing a short sale? Why should I do a short sale instead of a foreclosure?
A: Depending on your current credit situation, a short sale will result in a 3 year credit hit. This is significantly better than the 7 year credit hit incurred when doing a foreclosure. Not to mention, a foreclosure does not release your responsibilities for the deficiency between what the bank receives for towards your note, and what is owed. After a foreclosure you are liable to having the bank come after your assets, and in some cases even some jail time. On a short sale, the terms are negotiated so that there is no deficiency judgment.
Q: Who can do a short sale?
A: Anymore, just about anyone can do a short sale. However, you must be able to show a hardship that justifies your reasoning for not being able to make your mortgage payment. My wife and I have been doing short sales for people in all walks of life. From minimum wage employees, to high paid attorneys with over $1M in their IRA's.
Q: How long can I stay in my home if I'm doing a short sale?
A: When doing a short sale, we list the home for sale. Once an offer is received, we package it up with all of the financial docs that we need, and we present it to the lien holders. This opens up the door to negotiations. This process typically takes 60-90 days (sometimes up to a year). During this time you may stay in your home, and the foreclosure process will be brought to a halt. Once the short sale has been approved by the bank, you will open escrow (go under contract) for the agreed upon time period. At this point the transaction will resemble your traditional deal, and you will need to vacate the home upon closing of the transaction.
Q: Does it cost me anything to do a short sale?
A: No, commissions and fees are negotiated to be payed for by the bank. The home is typically sold "as-is". However, often times the bank will pursue having the seller sign a promissory note. This is something that you can agree or disagree to, depending on your circumstances.
Brendan Winans is a full time professional Realtor®, based in Malibu, serving all of the greater L.A. region. To search through thousands of California listings, please click the "BW" link below.
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