The term real estate short-sale is being tossed about quite frequently these days. All of the Media seems to have picked up on the declining real estate market conditions and the increasing willingness of banks and other financial institutions to consider real estate short-sales as an alternative to foreclosure.
In many parts of the country, real estate prices are down and the time it takes to sell properties has risen dramatically. Declining real estate markets are the primary reason for the rise in short-sale real estate opportunities.
So, what is a real estate short-sale? A short-sale is when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale. Not all lenders will negotiate a short-sale, and that is why a real estate agent or a lawyer can be a tremendous help by contacting the lender's loss mitigation department to negotiate.
Two conditions must be met before a bank is likely to approve a real estate short sale:
- Market values are such that the property's sale price cannot cover the outstanding mortgage balance(s).
- The owners find themselves unable to continue to make mortgage payments on the property.
Typically, lenders won't even consider a short-sale if your payments are current. Lenders will be more agreeable to negotiation if your payments are in arrears. Plus, if you have cash assets, the lender might try to tap those accounts. Doing a short-sale is not for the faint of heart.
Rather than go through the expense and time delays that a foreclosure proceeding would require, the bank may decide that allowing a short-sale makes more sense for them in the long run.
While a real estate short-Sale is an unfortunate and unpleasant experience for an owner forced to go through the process, it's not the end of the world and it's better than having a foreclosure on your credit report.
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Only experienced real estate investors and a very few real estate agents really have the experience to complete a successful short-sale. The key is to find a buyer for your home or a real estate investor. The real estate agent will negotiate with the bank to accept less than what is owed. The real estate commission is paid by the bank. Many banks will accept a short-sale because it will save them money in the long run. Banks are in the lending business, not the real estate business, they prefer to stay in areas where they have expertise. You can now accept a short-sale and not be taxed on the shorted amount. The new Debt Relief Act of 2007, signed by President Bush allows owners to sell their house as a short-sale and not be taxed on the shorted amount. This is a huge benefit to home owners who find themselves in this type of situation. How is the Seller's Credit Affected? The seller will take a hit on their credit report. The points lost on a FICO score as a result of a short-sale will show up as a pre-foreclosure in redemption status, which will result in a loss of between 80 to 100 points on their FICO score. This means a short-sale with a previous FICO of 650 will see it fall to 550 to 600. How long do you have to wait before buying another home? For short-sale sellers, the good news is that the wait is way shorter than a foreclosure before being able to buying another home, at around 18 months. If you would like to have a free consultation concerning a short sale, please give our office a call.
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