For anyone who has been shopping for Real Estate over the last year or two or if you are just beginning to shop, you would be hard pressed not to come across the term "Short Sale" on a least a few properties. Here in Palm Coast, houses for sale as a "Short Sale" represent a little over 30% of all houses for listed for sale in our MLS. I find myself talking short sale explanations on almost a daily basis with both buyers and sellers. I am also finding that many people have either made inaccurate assumptions or received inaccurate advice regarding "short sales". Since this type of sale situation is a reality for today's buyer and seller (and will be for probably a while longer), I wanted to address some of these common "myths" regarding "short sales".
First, one must understand what a "short sale" is and is not. The term "short sale" is used to denote a situation where a seller is distressed and is attempting to sell their property to avoid foreclosure but the property will not sell for equal to the amount or more than what is owed. Since the seller is 'distressed' (having difficulty making payments and unable to pay the difference with selling the property), the seller is also asking the lender to make arrangements to handle the difference with them.
With that said, let's look at some of the "myths" (or misconceptions) associated with "short sales":
- Short sale is the same as foreclosure and the bank wants to 'unload it' as quick as possible. First, a "short sale" IS NOT a 'foreclosure". "Foreclosure" is the situation where the lender has seized possession of the property. A "short sale" is a pre-foreclosure option for a borrower, and the borrower still has possession of the property. Therefore, the lender is seeking the borrower to sell the property for as little loss as possible and has agreed to work with the borrower in reagrds to any unpaid difference.
- The bank has to 'forgive' the difference on all "short sales". Actually, it is up to each inidivdual lender how they handle these situations and the options they provide to the borrower(s). The lender is NOT obligated to do anything for that matter. The "short sale" is simply an option provided by many lenders, and it is also means to make potential buyers aware of the special circumstances regarding the sale of that property.
- Since it is a short sale, I can offer a lot lower than what the property is listed for. Actually, you often have less 'wiggle room' for negotiation because it is not solely up to the owner as to what can be accepted. The lender is also involved in the acceptance of offers. The lender does not say "yes" or "no" to offers, but rather provides an amount they are willing to accept as a difference in what is owed. In addition, there is also the negotiation of how the difference will be handled with the borrower which is often times not 100% agreed upon up front. Remember, the lender is attempting to minimize their loss as much as possible NOT just 'get it sold quickly'.
- I owe more than what houses are selling for, so I can sell as a "short sale" and won't have to be responsible for the difference. Again, a "short sale" is a pre-foreclosure scenario. Therefore, a lender will not even consider "short sale" negotiations with a borrower until the can show that they are having difficulty making payments and must sell to avoid foreclosure. The lender will also want to see that there is an inability to pay the difference between what is owed and what the property will sell for. And more importantly, keep in mind that each individual lender will handle this differently according to their policies.
- Since it is negotiation with the lender, why do I need a Realtor? A Realtor experienced in short sale scenarios is valuable in assisting you with the three parts of these difficult situations . . . initial negotiation and filing with the lender to offer the property for sale as a short sale, offering and advertising the property to get offers, and negotiation with both the lender and buyer to get the sale finalized. The Realtor should also keep in constant communication with the lender as well especially when an offer has been submitted from a potential buyer.
- With all of this hassle, I should just let the bank foreclose. This is a difficult and stressful time, but it is important to make sure you are weighing all of your options. Foreclosure can having credit repercussions that last longer than a short sale. "Abandonments" and foreclosures may result in income tax obligations that are greater than a short sale scenarion. See the The Mortgage Forgiveness Debt Relief Act and Debt Cancellation for more information on "debt forgiveness". See also the IRS's Publication 4861 for examples and explanation of tax obligations.
- Buyers don't want to even look at short sales because they are too difficult to purchase. Not true, and buyers know that short sales can often times be great purchases and often in better condition than foreclosure properties may be. A property offered for sale as a short sale should not be offered with the same diligence as any other property. The goal is the same . . . to get it sold for the owner at the best financial benefit.
There are obviously other rumors and opinions which can go around, and it is important to get the truth and facts when it comes to short sales for both buyers and sellers. For assistance with short sales in the Flagler County/Palm Coast, FL areas, fell free to contact me today.