SHORT SALES In real estate, a short sale refers to the sale of a property in which the sale price is insufficient to pay off all encumbrances and pay the expenses of sale. If the lender is convinced that the owner, for various reasons, is unable to continue making the payments the lender will often agree to take less that the full amount owed to allow the sale to close escrow. The incentive for the bank to approve a short sale is to have the property sell before the loan becomes a problem account on their books. This Process may be difficult to believe but it is a definite possibility. As stated below there are hoops to jump through. Banks are willing to allow individuals to assume the loan if they meet the required criteria. This is a system that works because the banks do not want to hold property for one but they also do not want to pay a fee (at times up to $25,000) in order to send the property through the foreclosure process.
Before a lender approves a short sale they will make two key decisions. First, can the owner afford to continue making the payments on the property? If they can there is no reason for the bank to eat the loss. Banks will not look favorably upon a borrower that they determine lied to get the loan. Second, will approving the short sale leave the bank in relatively the same position as they are likely to be in by going though the foreclosure process and then selling the property? If the bank can do significantly better by foreclosing they are likely to do so. The seller must not receive any sale proceeds for themselves. If there is a junior lien holder, the discounts can be substantial, sometimes as high as 90% or more. Question two is the primary determinant here. If the senior lender forecloses the junior may get nothing so they may take a deep discount to get something out of the property. Short sale sellers need to be careful because there is no free lunch. The seller may end up with taxable income in the amount of the debt that is forgiven. The seller may also end up with adverse entries in their credit history. Any property owner considering a short sale needs to seek the advice of competent legal and tax advisor's before entering into the transaction. Selling your home in a Short Sale Verify the value of your property. If you are selling the property through a real estate broker, your broker will provide you with an estimate of market value. If you are selling the property yourself, do your own market analysis of the area and your property. 2. Add up all the costs of selling the property. If you are using the services of a real estate agent, the agent will provide an estimate of closing costs. If you are selling the property on your own (for sale by owner), call a local title company or real estate attorney and ask, as a seller, what the closing costs will be. 3. Determine the amount owed against the property. This will be the total of all loans against the property.
4. Do the calculations. Subtract the total amount owing against the property from the estimated proceeds of the sale. On a short sale, this will be a negative number. 5. Contact the lender or lenders. Talk to someone in the customer service department and tell them the situation. They may direct you to a specific department. Talk to a supervisor or manager if possible; this person will have more authority. 6. Ask the lender what its procedures are for a short sale. Some lenders are willing to work with you by reducing the amount owed or making other arrangements. Others will look to the agents involved (if any) or anyone else who's making money off the transaction to see if they are willing to make concessions to make the transaction happen. Still other lenders will tell you that your debt is your responsibility, one way or the other. 7. Sell the property. Msot lenders require you list the property with a real estate agaent. These home selling reports (Below) will assist you in answering the many questions that arise during the home selling process. When you're armed with the right information, and an experienced real estate professional, you'll be closer to reaching your goal - selling your home fast, and for the best price.
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