Short SalesPosted by Brett Tousley on Monday, March 22nd, 2010 at 2:59pm.
What is a short sale?
Put simply, a short sale is the process of selling real property (home, condo, land etc) for less than what is owed to the bank by the sellers.
As an example; The Smith's purchased their home with a zero down mortgage in 2006 for $360,000.00. Recently Mr. and Mrs. Smith have experienced a legitimate hardship and need to sell the home. Unfortunately, their lovely home is now worth only $300,000. in today's market.
They have a few options, in order of preference:
1. Sell their home for $300,000. and bring a check for the difference to closing.
2. Sell their home as a short sale.
3. Deed in lieu of Foreclosure, Provided the bank is willing to take it back.
4. Let the property be foreclosed upon by the lienholder.
Most folks that have experienced a legitimate hardship, don't have the money to cover the deficiancy at closing. The Smith's are most people and don't have the money. The Smith's choose to pursue a short sale with their lienholder.
The process of Short Selling a home
The Smith's need to sell, but they can't actually provide clear title to the home for less than what is owed, unless they get the lienholder's/lender's/investor's approval. Here's where the heartache begins!
The Smith's contact local Tacoma Realtors and list their home for sale. Their Realtor will help them to prepare a large packet of information to submit to their lender. This packet of info is often referred to as a Short Sale Packet. In this short sale packet will be a number of items including, the Smith's financial statements, tax return, recent pay stubs, letter of hardship, estimated HUD 1...etc. The lienholder stands to lose 10's of thousands of dollars, they will require you to document your hardship! Depending on the bank, the Smith's Realtor may be able to cut some time off the transaction by pre negotiating what the bank will accept as a loss. Most often the bank will want to see an offer before they will even talk to you.
Let's suppose the Smith's receive an offer quickly and submit it to the bank the first week the home is on the market. The offer most often sets the wheels in motion at the bank, but those wheels are grinding very very slowly.
It's not uncommon to wait weeks for the bank to aknowledge the offer and assign a negotiator. This negotiator is generally swamped with many other files and has very little compulsion to hurry the process along. Eventually, the negotiator will order the bpo. Once the bpo is received from the bank, the negotiator will send the file up the food chain for "investor approval" which often takes several more weeks.
If the investor agrees with the terms of the offer they may agree to the short sale and the buyer can move towards closing.
The Short Sale process can take anywhere from 60 days to over 6 months to accomplish, or can end in a foreclosure. There are not guarantees in a short sale other than it will be a time consuming effort.
Is a Short Sale right for you?
If you are either in danger or currently behind in your mortgage payments, a short sale may be right for you. You'll want to sit down with an experienced Realtor to determine if you are a viable candidate for a short sale. A short sale isn't exactly a "get out of jail free" card, but it's an effective tool for many homeowners in a tough spot.
Brett Tousley is the designated broker and owner of NW Home Brokers. He can be reached at 253-820-2745 or firstname.lastname@example.org
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