What's all the buzz about: SHORT SALES

By
Real Estate Agent with Remax At Barnegat Bay


The hot button in real estate these days is the Short Sale. "Short Sale" is not an official real estate term. It's a vernacular expression encompassing a real estate transaction where a seller received an offer from a buyer to purchase the seller’s property. The offered price, however, is less that the amount owed to the bank or lender (and there could be more than one) plus closing and other ancillary costs.

 

Some lenders call it a “work out”, others a “settlement”; still other lenders use the term “short sale” as a transaction where the seller accepts , in the form of a person loan, the responsibility to pay the remainder (deficiency) of the loan.

 

For the purposes of this blog I’m using the term “Short Sale” as a sale where the bank simply takes less than is owed in order to avoid the costs of foreclosure, maintenance, taxes, insuring, listing and re-selling the property and the seller is absolved of any residual liability for the loan.

 

That brings us to “why are short sales needed?” Coupled with some very creative financing methods and sagging sales, many home owners are finding themselves between the proverbial rock and a hard place: an ungainly monthly mortgage payment having adjusted upward and the market value of their home dropping below the payoff balance of the mortgage – and in some cases a second, third and even fourth mortgage may be hanging in the wings.

 

When market values are reasonably stable and buyers cannot meet their mortgage payments a lender will usually resort to foreclosure –

Foreclosure is the equitable proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owner's failure to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust." Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, it is typically said that "the lender has foreclosed its mortgage or lien.” Wikipedia.

 

In today’s volatile real estate market where prices can drop tens of thousands a month it can cost a lender more to foreclose than to take less than is owed right up front. Hence the reason short sales are the gaining in popularity and frequency.

 

Some questions have arisen and many myths abound regarding short sales. Such as, if a lender accepted less than the mortgage balance for the payoff of a mortgage at the sale of a property the federal government would consider the deficiency “income” (since the seller received that much money as a benefit!) Since Dec 20, 2007 and lasting until 2010 President Bush signed a law relieving sellers of this burden. After 2010? Who knows…

 

Another myth is that the lender can take legal action against the seller for the deficiency amount. The fact is any reputable attorney or closing agent will assure that the closing documents include wording that protects the seller from any responsibility to pay a remainder or deficiency.

 

So, even though “Short Sale” is indeed the hot button word on the real estate street today, it certainly isn’t complicated and most professional real estate agents are well versed in the process.

 

And, of course, I am always available with a click or a call to answer questions about the sobering sale of a house with a top heavy mortgage.

Comments (3)

Angie Vandenbergh
Crye-Leike, Realtors - Memphis, TN
A Crye-Leike Blogger

Hi! Welcome to the site. I see this is your first post.

There is a lot of reading on this site. I recommend that you read, read, read and then comment, comment, comment. There are so many different blogs to read. There are tons of topics out there from real estate, marketing, technology, seo, staging, mortgage, etc. It goes on and on. You'll start to get to know people and before you know it... you'll have figured out the benefits of the site. 

Also check out Resources for the Active Rain Newbie.

Good luck!

Feb 05, 2008 01:50 AM
Keith Elliott Jr
KEIRE Realty Group - Manassas, VA
Principal Broker/Owner

Hi Tom,

Welcome to Active Rain and congrats on your first post! The opportunities to learn and network are incredible here. Best of luck to ya!

-Keith

Feb 05, 2008 07:17 PM