The Basics of a "Short Sale"

Real Estate Agent with Keller Williams Western Realty

As a professional in the real estate industry, I have had a lot friends and clients ask me to explain the term "short sale" lately.  A short sale used to be something that was primarily only used by seasoned investors as a technique to get a lower purchase price from a seller by offering to negotiate the difference directly with their lender.  Now, with so many home-owners in trouble on their mortgages and having to sell in a market that is perhaps far less than what they purchased for, they are becoming very common.

So here are the basics of a SHORT SALE if you are still wondering:

1.  What is a Short Sale?  A "short sale" occurs when a home is sold and the lender(s) for the seller agree to take a pay-off that is less than what the borrower/seller owes them.  Example:  Joe owes ABC Bank $350,000 on his home, he sells the home for $345,000, after closing costs he NET's $320,000 and ABC Bank agrees to take a 30K loss by accepting 320K instead of 350K at closing and releasing their lien on the home so that the purchaser can obtain free & clear title to the property

2.  Is a seller still obligated to pay back the short difference to the bank?  It depends, that is part of the negotiations between the seller and their bank.  Unlike foreclosure, the bank can hold an unsecured judgement against the borrower for the amount they are still owed.

3.  How does a short sale affect your credit?  This is probably the biggest mis-conception out there right now.  Many people incorrectly assume that if they short-sell their home, instead of being foreclosed on, they will completely save their credit.  A short sale does not do as much damage to a borrower's credit score as foreclosure, and depending on the circumstances & negotiations, it can often be a better option than foreclosure.  However, if you want to have good credit it is always best to just pay back what you borrow...

4.  Where do I start if I need to sell my home now and I owe more than it is worth?  This is just the absolute basics of a short sale, if you are considering selling your home and you owe more than what you will NET after selling, or you are already in pre-foreclosure you should talk with a professional about your unique situation.  I work with several atorneys and escrow officers who are very experienced and have negotiated 100's of successful short-sales with all the major national and local lenders.  Email me if you would like to find out more?

5.  How do I find out what homes are currently being sold "short?"  As a home buyer or investor, a short-sale can be a great deal.  The purchaser reaps the bank's and seller's loss.  Start by zooming into the area you are interested in on my MAP Property Search, and then click the box "foreclosures," this will show only "distressed" listings that are bank-owned or short sales.  NOTE:  Buying a short sale can take several months and often longer to successfully negotiate and close!  But often the wait is worth it for the great deal.

So there's the basics on short sales for you.  Feel free to call/email me if you are aching to do more research on the topic and I can point you to many, much more exhaustive sources of information!

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Pike Real Estate    (360) 610-4826


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Since listing agntes change between a short sale and an REO it isn't really practical to know what offers submitted at short sale were vs. when they sell as a bank owned but I know from the few times I've participated in the short sale and it fell through I saw the same house sell for substantially less when it went back to the bank. The reluctance by banks to accept short sales lies in many different areas, including mortgage insurance rules, write-offs, borrower's ability to pay (even if they are not) and the sheer number of in-default loans they are dealing with. The best answer would be one given by one of the big banks but they refuse to explain these situations to us. Reply
Jul 19, 2012 06:55 AM #1
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Jul 20, 2012 03:39 PM #2
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