A short sale is a home sale in which the home is financially distressed. The mortgage owed exceeds the market value of the home and we say that the home is "underwater" or "upside down." A short sale is NOT a foreclosure.
How does this happen?
First, a home is purchased in a high market, and especially when the home is purchased with a large percentage of the value being mortgaged. Imagine a $500,000 mortgage on a home you've purchased for $525,000.
Second, the home's value drops below the mortgage value. Imagine the $525,000 home's value dropping to $450,000 - certainly not unheard of in the past 8 years. Now the owner owes $500,000 but can't sell the property for more than $450,000.
What can you do?
You really have 3 choices:
- Sell at market value and accept the loss. bring a check to the closing. Protect your credit.
- Stay in the home and wait for the market to improve.
- Sell short. That means that your lender agrees to accept a lower pay off amount as payment in full. Affects your credit rating far less than a foreclosure. Forgiven debt may be considered income.
How do you get a Short Sale approved?
For a short sale to be approved, these four conditions must be true:
- Your mortgage must exceed value of home.
- You must have had a "hardship" since the purchase of the home - loss of job, business failure, divorce, death, etc.
- You must have a monthly shortcome of income to repay the mortgage.
- You must be facing insolvency - the inability to repay the loan from other assets.
Is it really "Short?"
No, not usually. When a buyer makes an offer on an underwater home, not only does the homeowner have the option to negotiate, but so does the mortgage lender. This may take some time.
What do you do next?
If you're thinking of a short sale, you should contact your lender. You also will need a real estate agent to maneuver through the stages of a short sale.
For more information, please go to HallmarkVideos.com and select the video named "Short Sale Option." If there is anything Team Zuhl can do to help you with the sale of your home, please don't hesitate to call us!