Questions About Short Sales
Short sales! After three and a half years, I’m still getting questions about short sales. What is a short sale? Do I qualify for a short sale? How do I market my house as a short sale? How will a short sale affect my credit? How do I purchase a short sale? I’m sure there are other questions about short sales. But we’ll start off with the easier ones. By the way, I want to add my disclaimer: I will answer these questions based on what I have experienced. The rules for short sales seem to change with the wind. In 2010, I listed 13 short sale properties. I’ve had little success and a lot of disappointment. I hope the information I share with you will help. Good or bad, someone needs to tell the truth!!!!!
What is a short sale?
A short sale is when a bank settles for less than what the payoff is. Example: The payoff on a mortgage is $180,000. The bank agrees to take $160,000. They have agreed to take less that what is owed.
Warning!!!! The banks will offer to release the deed, but not the debt! What does this mean? They will release the deed so the home owner can sell the property, but the home owner may still be responsible for the remaining portion of the unpaid mortgage. The home owner will need to negotiate with the bank to release the deed and the debt… and please, home owners, get this in writing!
Do I qualify for a short sale? This is a tough question without knowing the home owner’s situation. This is a question I get from home owners who cannot pay their mortgage. In most cases, the home owner’s financial situation has changed since purchasing their home… loss of job, reduction in pay, too much debt, medical issues, etc. They have incurred some form of hardship. The key word here is hardship! In most hardship cases, the bank will work with the home owner to sell the property. The home owner can call their bank and they will direct the home owner to a web site where they can fill out several forms to see if they qualify.
How do I market my house as a short sale? Here is what we do at Clear Summit Realty. First, we do a market analysis of the house, neighborhood and surrounding communities to evaluate “like” properties. We want to see if the house will sell for the amount needed for the bank to approve the sell. Also, we want to make sure the house will appraise when the new buyer is getting a loan for the house. Please keep in mind that banks usually make more money when a house goes to foreclosure, rather than a short sale. Why? If the bank who has the mortgage is one of the bailout banks that got money from the government, these banks get a large percent of the deficit from the government when the house goes to foreclosure. Then, the bank can sell the house and make more money. Also, the banks can file an insurance claim for a foreclosure, the private mortgage insurance – PMI – that the home owner has been paying for every month that protects the bank, but not the home owner. For example purposes; let’s say the house is a good candidate for a short sale. We will market the house just like any other house, except we will greatly reduce the list price to obtain a quick offer. Otherwise, we’ll wait too long and the bank will foreclose on the house. This is the hard part… the perfect balance of selling between a buyer, the bank, and the appraised value.
How will a short sale affect my credit? If a person knows in advance that within three to five months they will experience a hardship, they can call the bank and start working out a plan for a short sale before they start missing any payments. If they have a reasonable bank, and they agree to work with a short sale, that is great. If you can sell the house before missing any payments your credit should not be affected. However, if a home owner waits too long and starts to miss payments, then their credit scores will start to decrease and hurt their credit scores. Also, the home owner will probably have to wait two years before they qualify to buy another house.
How do I purchase a short sale? Don’t! No, I’m just kidding… maybe. If I were representing a buyer who wanted to purchase a short sale, I’d make them aware of the items I just mentioned. I’d do a market analysis of the property. I’d make sure the listing agent has gotten the home owner’s hardship package submitted and approved by the bank. Note: having a hardship situation approved by the bank means they are open to negotiate an offer, but they have not approved the sales price and any contributions a buyer may request in the offer. I’d submit the offer just like I would for any other property, but with a few contingencies to protect my client. Please keep in mind that a response from the bank can take anywhere from one to six months. In most cases, the banks will respond with a counter offer. Very tricky!
A buyer must be patient!
I hope the information provided has answered a few of your questions. If you are reading this and live outside the Atlanta Georgia area, please email or call me and I will refer you to an experienced agent in your area. If you live local, you are welcome to email me anytime at email@example.com or call me at 770-842-4531. I’d be happy to discuss short sales with you.
Have a great day!