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So what's the real deal with Short Sales & Why does it take so long?

By
Real Estate Agent with Coldwell Banker Burnet

With 95% of my listings being short sales, I have come to learn a lot when it comes to this subject.  In this blog, I'll attempt to cover two important items.  The first, why even bother selling your home as opposed to letting it go through the short sale process.  The second, and certainly the most frustrating, why it takes so long to complete a short sale.

First, why could a short sale benefit you as opposed to allowing your home to complete the foreclosure process?  There are a couple answers to this.  If you have two mortgages, MN state law will allow a lender to do one of two things, foreclose on your home (thus, taking it away) or suing you for the deficiency in court.  They can ONLY do one or the other.  Next, there can only be one "foreclosure" process on any home/mortgage.  So, if you can see where I'm going with this, you could have one lender that forecloses on your home, and the other lender suing you for a deficiency judgment.  One of the main goals of agents is to get the lender to release you from any further liability after you sell your home.  I negotiate hard on a client's behalf to reach that goal.  Lender's are about as sneaky as one could imagine.  If they don't specifically state that they are considering your loan satisfied, they have the right to come after you.  Of course, this only applies to home owner's with more than one mortgage.  This is common in our market.  Now, there are conflicting articles for my next point.  Does the short sale increase your chances of obtaining future credit?  Most of the time, if you are behind in your mortgage by 4 or more payments, regardless of whether the home is actually foreclosed upon, new credit assumes that it is a foreclosure. With that being said, it's important to get it off your books sooner rather than later.  The conflicting article states that any short fall on the payoff on your credit report is the same as a full foreclosure.  Only time will tell what the actual truth is.  Of course, one or two 30 day lates are far better than the foreclosure being listed.  It's all in how your lender reports to the credit bureaus.  "Paid as agreed" is the best possible report.

Now to my second question:  Why does it take so long to complete a short sale?  This is true most of the time unless your lender is a small local bank.  The reason for this is because there are thousands of home owners that are selling their homes on short sale.  At countrywide for example, each individual negotiator has between 100 and 150 files on their desk at any one time.  This is down from a staggering 300+ files just a few months ago.  Countrywide has been adding negotiators to their department!  As for a general explanation:  The banks are corporate.  They are losing money.  There are a lot of approval steps that each file needs to go through.  And trust me, they do their due diligence to make sure that the loss of selling the home now is less than the loss of foreclosing.  I am not 100% sure, but I have heard that it costs up to 25% of the home's value for the lender to foreclose.  Understandably, the originally vision of lenders to make money off of home mortgage interest was a much better idea than making money by owning Real Estate!

 

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