What You Need to Know About Short Sales
If someone you know is facing financial hardship and can’t pay their house note, they need to know about ‘short sale’. Perhaps they’ve lost their job, or had to move in order to find employment, and can’t afford both a house note and the rent on their new home. These things happen to real people. Luckily there is a solution besides the devastating effects of foreclosure. Read on to learn more. . . .
What are the causes of a Short Sale?
There are any number of reasons a seller may find themselves facing a short sale situation. For example, in our area, many people bought their homes in a post-Katrina market when prices on the Northshore were highly inflated due to an unprecedented loss of homes in SE-LA, and the resulting high demand for housing in St. Tammany Parish and surrounding areas.
Five years later, the economy in general is at a very low point. In addition, housing prices that had returned to pre-Katrina levels by 2009, dropped another 5%-10% in 2010. Under these circumstances, it is not at all surprising that people may owe more on their home than the current market value.
How does one go about doing a short sale?
If the sale of a home will not satisfy the existing mortgage, it stands to reason that the transaction will require the cooperation and approval of the lender. However, before a lender gives their approval, they will want to see that the homeowner has made a genuine attempt to sell the home. The best way to do this is to list the home with a professional who will market the home aggressively to attract the most number of potential buyers.
Once a buyer is found and a contract negotiated, the listing agent will proceed to put together a short sale package for the seller’s lender. Among other things, it will contain the seller’s personal financial information, a ‘hardship’ letter explaining why they can no longer afford their mortgage payments, and various Realtor reports showing listing history, recent ‘sold comps’, and current market information.
How long does a short sale take?
Once a homeowner has missed his first mortgage payment, he is headed down a slippery slope into foreclosure. A short sale is the one thing that, done quickly, can forestall foreclosure. It is therefore imperative that sellers not procrastinate in contacting a Realtor and getting the process started at the first sign of trouble. Considering it might take a couple of months to find a buyer, and two to three months to actually get through the short sale process, it becomes obvious that time is of the essence!
Does a short sale hurt my credit?
Yes. But the impact is usually not as damaging to a persons credit as a foreclosure would be. A short sale will be reported as a ‘debt settled’ much the same as any other negotiated payout that was less than the full amount.
On the other hand, a foreclosure can severly impact your credit score and prevent your buying another home for five to seven years!
So. If you are able to keep your other bills under control and paid timely, your credit will no doubt recover from a short sale much faster than if your home goes into foreclosure.
Do I really need a Realtor to do a short sale?
In a word, Yes. No one should attempt this process without the help of a Realtor with prior training and experience in handling short sales. Besides asking for all your financial information, the lender will also ask for documentation of comparable home prices, recent sales in the area, and a record of efforts made to sell your property.
In short, your Realtor will act as an advisor to help you prepare a ‘package’ that includes a hardship letter and all the necessary financial documents a lender will ask for. He will also negotiate on your behalf to get the lender to agree to your short sale. And of course, the Realtor’s costs do not need to be paid by you since they will be absorbed into the final settlement of the property.
In summation, the short sale process is time-consuming, and once the first mortgage payment is missed, the clock is ticking. In spite of all efforts, a short sale may take so long that foreclosure proceedings cannot be stopped. With so much at stake, why would anyone not want the help of a professional at the outset?
Call me at 504-451-8343 for a personal and confidential consultation.
I have earned the coveted SFR (Shortsale/Foreclosure Resource)designation from the National Association of Realtors.
This article offers no legal or tax advice. Those considering a short sale are advised to consult with their own attorney for legal advice, and their tax professional for tax advice, prior to entering into a short sale listing agreement. Neither Joyce Albert nor Keller Williams Realty Professionals is associated with the government, and our services are not approved by the government nor your lender. Even if you pursue our services, your lender may not agree to change your loan.