I often get asked about Short Sales and have come to realize that many people do not know what that is.
First, let me educate you on what a Short Sale is in terms of real estate. A Short Sale means that the value of the home is worth less than what the borrower / homeowner owes on it. For example, a homeowner bought a home in 2005 for $550,000. The market shifts, inventory is high and the homeowners are in financial trouble. The home is now two-three months behind in mortgage payments and the lender has issued a Notice of Default (NOD) with intent to start a foreclosure action. Due to high inventory and lack of interest by prospective buyers, the homeowner gets permission from the bank to sell the property below market price as a Short Sale. The low price is out of the norm when compared to other homes being sold in the area at higher prices and therefore, the property generates interest. Offers are received and the property is eventually sold for $490,000. This results is a loss to the bank of $60,000.
All of this was a result of a settlement between the creditor and debtor but not all properties can qualify for a short sale. All lenders have strict policies and guidelines that they will follow to approve or disapprove a short sale action. The negotiations can be complex and therefore many distress homeowners will seek the guidance and negotiating expertise of a Realtor who knows how to execute a Short Sale.
Time is also a factor as a Short Sale may take awhile to complete. In today's foreclosure market, the lenders are stacked with files to process and the loss mitigation or foreclosure department staff are hourly paid employees and are stressed. You need to have an effective negotiator on your side for a Short Sale to be successful. However, those of you with patience will benefit from a Short Sale in lieu of foreclosure or even filing bankruptcy.
Foreclosure and or banckruptcy will devistate your credit score and appears on your credit profile for 7-10 years. A Short Sale is less damaging to your credit profile and shows that a loan has been paid off as settlement in full. No doubt you will have a ding on your credit score for being late 90-120 days but that is better than a foreclosure or banckruptcy mark that will keep you out of the credit game for a long time.
I think it's time to educate the public about the option of doing a Short Sale and invite homeowners who are in financial straits to attend a FREE seminar on this subject which be held at the Financial Title Office at Richmond Hilltop on September 1 & 8th. I also would like to hear from the public on their experiences (good, bad, indefferent) on this subject. For more information about the seminar, contact Percy Irving of RE/MAX Horizons Reliance Team (510)213-7300 to reserve your seat.