As a broker who has closed many short sale transactions, I am frequently asked questions on how this type of sale works. There is a quick, generic answer, and the long form!
The quick answer would be the example of Mr. and Mrs. Smith owe $200,000 on their home. Mr. has lost his job as a construction worker, Mrs. is part time at the local school. With their income more than halved, they cannot make their house payment. The couple calls their lender, who tells them they may be eligible for a loan modification or other foreclosure alternative. Mr. Seller has received a job offer in another state, and they decide to sell the home and pursue a short sale. Their home is now worth $150,000.
Remember, this is the quick answer! Simply said, the sellers call a local realtor(s) for market analysis. Knowing that the home is ‘underwater’ the realtor will help them with the paperwork needed with their lender to begin the short sale process, get the home on the market, and with the lender on board, sell the home.
Each short sale is different, but most have several similarities. The seller can have 1, 2, 3 loans..a little trickier, but usually doable. There could be a divorce, death or job transfer. All short sales need to have a ‘hardship’, a reason that the borrower cannot pay the loan anymore. All lenders will require taxes, paystubs, a financial worksheet of household expenses and patience on the part of the borrower! Short sales are not quick, but once an offer is received, they can be much shorter than the previous 5 month wait that we have seen in years past. Buyers must be ready to wait an average of 3 months to get into their new home. Some complicated files can take longer, some only 60 days.
A short sale seller can become a buyer again in much less time than someone who has given their home back to the bank. If other debt has been managed well since the sale, the average seller can be back into a new home in an average of 2 years with a Fannie or Freddie backed loan (75% of all loans) . A foreclosed homeowner will wait 5-7 years.
Yes, a short sale affects your credit, but the ability to move on is a decision many homeowners are making for their families in this turbulent economy. It is not a decision to be made lightly, but it is an option which can lift a huge burden from a struggling family. Consulting with an attorney, accountant and realtor can help with the decison making process and start your family off to a new beginning.
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