What You Need to Know About Short Sales

 What is a Short Sale?

          A short sale occurs anytime the net proceeds from a sale are less than the amount needed to pay out the mortgage plus any other liens against a property. 

What are the causes of a Short Sale?

          There are any number of reasons a seller may find themselves facing a short sale situation. For example, many people in St. Tammany bought their homes during a post-Katrina market where prices became highly inflated due to an unprecedented loss of homes, and the resulting high demand for housing on the Northshore during the months following Hurricane Katrina.

          Five years later, the economy in general is at a low point. In addition, housing prices that had returned to pre-Katrina levels by 2009, have dropped another 5%-10% in 2010. Under these circumstances, it is not at all surprising that people may owe more on a mortgage than the current market value.

How does one go about doing a short sale?

          If the sale of a home will not satisfy the existing mortgage, it stands to reason that the transaction will require the cooperation and approval of the lender. However, before a lender gives their approval, they will want to see that the homeowner has made a genuine attempt to sell the home. The best way to do this is to list the home with a professional who will market the home aggressively to attract the most number of potential buyers.

Once a buyer is found and a contract negotiated, the listing agent will proceed to put together a short sale package for the lender. Among other things, it will contain personal financial information from the seller, a ‘hardship' letter explaining why they can no longer afford their mortgage payments, and various Realtor reports showing listing history, recent ‘sold comps', and current market information.

 How long does a short sale take?

          Once a homeowner has missed his first mortgage payment, he is headed down a slippery slope into foreclosure. A short sale is the one thing that, done in time, can forestall foreclosure. It is therefore imperative that sellers not procrastinate in contacting a Realtor and getting the process started at the first sign of trouble. Considering it might take a couple of months to find a buyer, and two to three months to actually get through the short sale process, it becomes obvious that time is of the essence!

Does a short sale hurt my credit?

          Yes. But the impact is not as damaging to your credit as a foreclosure would be. A short sale will be reported as a ‘debt settled' much the same as any other negotiated payout that was less than the full amount. That may cost 80-100 points against your credit score.

          On the other hand, a foreclosure can impact your credit score up to 300 points... and prevent your buying another home for five to seven years!

          So. If you are able to keep your other bills under control and paid timely, your credit score will no doubt recover from a short sale much faster than if your home goes into foreclosure.

Do I really need a Realtor to do a short sale?

In a word, Yes. No one should attempt this process without the help of a Realtor with prior training and experience in handling short sales. Besides asking for all your financial information, the lender will also ask for documentation of comparable home prices and recent sales in the area and a record of efforts made to sell your property.

          In short, your Realtor will act as an advisor to help you prepare a ‘package' that includes a hardship letter and all the necessary financial documents a lender will ask for. He will also negotiate on your behalf to get the lender to agree to your short sale. And of course, the Realtor's costs do not need to be paid by you since they will be absorbed into the final settlement of the property.

In summation, the short sale process is time-consuming, and once the first mortgage payment is missed, the clock is ticking. In spite of all efforts, a short sale may take so long that foreclosure proceedings are started anyway. With so much at stake, why would anyone not want the help of a professional at the outset?

For a private, confidential consultation, call me at 504-451-8343. 

Or visit my website at www.SlidellShortSales.com for additional information.