A “Short Sale” is a sale of real property in which the outstanding obligations (loan balances) are greater than the amount that the property can be sold for. This is typically the case when home prices are falling, and the seller has financial distress from either a reduction in income or an increase in monthly loan payments such a re-casting of the existing rate. Successfully completing a short sale may have a far less negative impact on the seller’s credit and tax circumstances than a foreclosure would. A foreclosure will severely damage the borrower’s credit score for the next 7-10 years, and rates on any future loans they apply for during that time will have interest payments based on about 3 times what prevailing interest rates are.
A short sale is typically done during the foreclosure process, after a Notice of Default” has been filed. A short sale will stop the Trustee Sale which concludes the foreclosure process.
At this point, you may be thinking to yourself, “Why in the world would a bank agree to a short sale?” The answer is fairly simple:
Banks are in the business of lending money and not owning real estate. If a home is in foreclosure because the borrower is in default, that’s called a non-performing loan. Federal Reserve guidelines state that the bank must put aside two to eight times the amount of the non-performing loan to cover the bad debt. If this money is sitting in reserve, it obviously can’t be loaned out to new customers to make the bank more money. As a matter of fact, there are strict federal guidelines as to how many bad loans a bank can even have on their books at any given time. If a certain percentage of their outstanding loans are considered bad debt, they can be fined, sanctioned and even federally regulated. So you see, they are quite eager to get rid of a property before they have to take it all the way to a Trustee Sale and possibly take it back as an REO (which by the way stands for Real Estate Owned.) Not to mention the fact that the foreclosure process is long and expensive for the lender involved.
A short sale is accomplished by sending the lender a “Short Sale Package” which includes many documents supporting the fact that the borrower can no longer pay their mortgage and must sell the property at a loss to the lender, and the only other alternative is foreclosure. Things included in the short sale package include: financial statements, pay stubs, medical bills, divorce decree, etc. Also included will be a detailed letter from the homeowner, called the “Hardship Letter,” explaining why they can’t make their mortgage payments anymore. The most important part of the package will be…
A short sale is an often complicated process, and can be lengthy, sometimes taking upwards of 3-4 months to get the whole thing done, especially if the real estate agent doesn’t know what they’re doing. Therefore, much of the success or failure in accomplishing a short sale depends on the real estate agent involved. I specialize in foreclosures and short sales and have many unique methods for getting short sales approved quickly. I also work with a large number of homebuyers and investors who are ready to make offers on properties immediately.
I know that being in the middle of the foreclosure process can be very stressful and frightening, and that understanding the process and what your options are can shed some light on the situation and help you feel better about it. My goal is to truly help people get out of this terrible predicament and move on with their lives.
If you have any questions about your particular situation, or about foreclosures and short sales in general, please don’t hesitate to .
Tags: default, foreclosures, how do I avoid foreclosure, Lenders, short pay, short sales, under water sale
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6 responses so far ↓
1 What is a short sale? | The Long List of Odysseus Medal Nominees | Realtors and real estate, mortgages, lending, investments // Feb 19, 2008 at 8:23 pm
[...] What is a short sale?, by Bart Marchioni. [...]
2 Thursday Links 02-21-2008 | Real Central VA // Feb 21, 2008 at 4:08 am
[...] What is a short sale? We aren’t seeing that many of these in the Charlottesville area (yet). [...]
3 Blue Ridge Mountain Cabins For Sale // Feb 22, 2008 at 12:25 pm
I bet you before it is all over and done there will be many short sale specialist out there. The current real estate industry has been giving evereyone a course on economics.
With realtor like yourself to guide them we will hopefully climb out of this mess. Great expanation of short sale!
4 Brett Wilson // Feb 22, 2008 at 5:37 pm
Great explanation! We do plenty of short sales and we speak to tons of agents and theyjust don’t seem to get it…in fact we are doing a refresher course article ourselves very soon.
Good show here!
5 Sandy Wallace, Santa Cruz, CA // Mar 28, 2008 at 7:07 am
Hi Everyone, It is true that as a Realtor I have to adopt my business model to exactly what helps my clients. I have become certified to do shorts sales in my area, by a company called shortsalesolutions.biz. They are one of the only companies that I know of that is working with NAR and CAR and most importantly THE BANKS. If anyone wants to know more about getting acredited with the banks to do shorts sale through this company please feel free to call me. There is no time to waste for the sack of our business and our clients.
Good Luck Everyone! Sandy in Santa Cruz, CA
6 How to Avoid Foreclosure, Part 2 of 3 | 3 Oceans Real Estate, A Boutique Real Estate Brokerage Serving the San Francisco Bay Area // May 19, 2008 at 11:23 pm
[...] getting the lender to take the loss on the difference. As I discussed in a previous post, “What is a Short Sale?“, this is accomplished by sending the lender a “Short Sale Package” which includes many [...]
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