Perhaps you've heard about short sales in the news, or maybe you are considering selling your house and a real estate agent has suggested a short sale. But what exactly is a short sale? Read on to learn.
The basics
At its most basic, a short sale is when the mortgage holder (usually a bank) agrees to allow your home to be sold for less than what is currently owed on the property.
How much less? That's up to the mortgage holder to decide, though sometimes your real estate agent or a loan negotiator working with your real estate agent can negotiate the price.
How it works
You should really only think seriously about a short sale if your property is in foreclosure or is very likely to enter foreclosure soon. Often when someone's home enters foreclosure the person panics, very often fleeing the property and leaving the place vacant. There's no need to do that. In most states when a home enters foreclosure, legally the property still belongs to the person who has the loan on the property; usually a period of time from 30 to 90 days will pass, while the property is in foreclosure, before the property will be auctioned off at the court house. Once the home is auctioned off, you must vacate the property, usually within 24 hours of the auction.
You can use those 30 to 90 days to your advantage. First, don't just trust what you read on the Internet, including this article, because the laws might be slightly different in your area. If you can't afford an attorney, that's fine, because you won't need one. You can find out the basics usually by contacting a real estate agent, and agents who specialize in short sales or at least who are familiar with short sales can commonly be found in most areas; check your phone book or look online for such an agent.
Once you have a real estate agent, the agent will place your home one the market. This is where that 30 to 90 days comes in quite handy. Your agent can use that time to find a buyer for your property. Once there is a buyer, the agent can then have the auctioning of your property delayed for at least another 30 days, sometimes quite a bit longer.
The real estate agent then contacts the mortgage holder and informs the bank a short sale is in progress. At the same time the agent will offer the mortgage holder the buyer's bid on your property. Quite often the bank will turn down that initial bid, in hopes of getting more money. Keep in mind, the bank is technically losing money on your property, so they are going to try to get back as much of that as possible.
Complications
Yes, as with any modern financial transaction concerning property, complications can arise.
The mortgage holder might threaten a lien against you, the original property holder. This doesn't happen often, but some banks aren't as easy to work with as others. The bank might even want you to sign something saying you will still be held responsible for any money they lose on your house; at that point, ask your real estate agent for any suggestions, but sometimes they can talk the bank out of such. Why? Because it doesn't make sense for you to agree to such terms when you could just file for bankruptcy and the bank could loose everything they have invested in your property.
A hundred seemingly other difficulties could arise, such as if the buyer has bad credit, but let your real estate agent worry about most of that. The agent will need certain information from you, sometimes a tax statement or bank statement or other information showing how much money you do or don't have, but this is to provide the mortgage holder with truth that you indeed can't make your house payment. When problems arise, the agent will deal with it or will contact you for anything they should need.
Keep in mind, a short sale is not a done deal. You can't always do one just because you want to. A buyer is required, for one thing, and the bank will want the buyer to have at least decent credit and proof of income to show the person can afford the payments.
Should you consider a short sale?
With all the difficulties that can arise, why should you even think about a short sale for your property? For one thing, a short sale will not hit your credit report nearly as hard as a bankruptcy would. The short sale won't leave you with good credit, but it won't damage your credit as much as bankruptcy.
Also, some sellers consider a short sale an honorable way to deal with the debt owed on their house. They can sleep better at night knowing they've at least tried to find a way to meet their responsibilities.
Three things to keep in mind
A short sale will not allow you to keep your home: A short sale is a sale. If you have hopes of keeping your home, ask your mortgage holder or a real estate agent about a loan modification instead. Unfortunately, many people do not qualify for a loan modification because they are so far behind on their house payments, have a bad credit history and/or limited income.
A short sale should not cost you anything: The real estate agent makes their money off the sale of your home. If an agent tries to talk you into paying upfront fees, find another agent. There are plenty of agents willing to try a short sale without charging you anything.
A short sale takes time:The average short sale takes at least three months, and can take as long as six months and occasionally longer. Be patient. At least during that time you will be able to remain in your home.
Find out more
This article is not meant to get into all the fine details about a short sale, especially since those details can vary from state to state. If you think a short sale might be for you, contact a local real estate agent. You also can check out the national Realtor Web site's Field Guide to Short Sales to learn more.
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