Short Sales Explained
A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.
What is a short sale? Here is a more official definition:
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A homeowner is 'short' when the amount owed on his/her property is higher than current market value.
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A short sale occurs when a negotiation is entered into with the homeowner's mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then 'sold short' of the total value of the mortgage.
Example: Mr. and Mrs. Smith purchased their home in November of 2005 for $400,000. They obtained 100% financing with an interest only payment for 5 years. One year later, November 2006, they are notified that Mr. Smith has lost his job and they can no longer afford the payments. Mr. and Mrs. Smith decide that selling is the best option for them, so they meet with a Realtor and discover the identical homes in their neighborhood are selling for only $369,000. If they were to sell the home for that amount, they would have to make up the difference between the sales price and their mortgage, or $31,000. In addition, they would also be responsible for paying taxes, closing costs, and Realtors commissions; approximately $23,000* more for a total of approximately $54,000. The Smiths do not have the money to pay for this shortage; they are in a "Short Sale" situation.
In this example, this couple is experiencing a financial hardship that will create an inability to maintain their monthly mortgage payments. There are steps they should take in order to make an informed and financially correct decision.
For homeowners to qualify for a short sale, they must fall into any or all of the following circumstances:
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Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
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Monthly Income Shortfall – In other words: "You have more month than money." A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
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Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. I hold the CDPE® Designation and am ready to identify all possible options and, when possible, assist in the quick execution of a short sale transaction in order to avoid foreclosure on your home.
If you have questions or feel you may qualify for a short sale, please contact me for a free consultation.
Understanding your options now could mean all the difference in the world.