Short Sale HelpWhat is a Short Sale?
A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actual owed.
A short sale, while never the perfect solution, can help many distressed property owners avoid the financial devastation of foreclosure. Depending on the type of loan and the number of loans you have on your property, the process can be lengthy and difficult. However, the Obama Administration is implementing new policies and guidelines to streamline the process and it is getting less complicated every day. In order for you to understand how a short sale works and what you can expect should this be the path you choose, let's start by dismissing the many myths that keep borrowers from pursuing a short sale.
Short Sale Myths
A short sale can be an excellent solution for homeowners who must sell and
owe more on their homes than they are worth. Unfortunately, a number of myths
about short sales have developed, and it is important to understand the reality
of this process should you find it meets your current needs.
Myth #1 The Bank Would Rather Foreclose than Bother with a Short
SaleThis is one of the most common misconceptions. The reality is that
banks do not want to foreclose on your property because the foreclosure process
is incredibly costly. Banks, investors, and even the federal government have all
publicly stated that if a person is qualified for a short sale, the deal needs
to be considered. Overwhelmingly, banks receive more on their investment through
a short sale than a foreclosure.
The qualifications for a short sale include:
- Financial Hardship - There is a situation causing you to
have trouble affording your mortgage.
- Monthly Income Shortfall - "You have more month than
money." A lender will want to see that you cannot afford, or soon will not
be able to afford your mortgage.
- Insolvency - The lender will want to see that you do not
have significant liquid assets that would allow you to pay down your
Myth #2 You Must Be Behind on Your Mortgage to Negotiate a Short
SaleWhile this may have previously been the case, today lenders are looking
for verifiable hardship, monthly cash flow shortfall, or pending shortfall and
If you meet these three requirements and believe that you soon may be unable
to afford your mortgage, act immediately. Any delay could limit your options. Do
not wait until the countdown clock to foreclosure has started and you have even
less time left.
Myth #3 There is Not Enough Time to Negotiate a Short Sale Before My
ForeclosureThis is a myth that probably hurts homeowners the most. Many do
not realize that foreclosure is a process, and that there is time to make
decisions that may result in better outcomes.
The foreclosing party in most cases a lender can stall a foreclosure up to
the final day of the process. Today, many lenders will stall a foreclosure with
as little as a phone call from you explaining that you are trying to sell, and
almost all lenders will stall a foreclosure with a legitimate contract. For real
estate professionals who understand foreclosures and short sales, there is time
available until the foreclosure process is complete.
Myth #4 Listing My Home as a Short Sale is an EmbarrassmentIt is
understandable to have reservations about letting the world know that you owe
more on your home than it is worth. However, according to recent estimates, more
than one out of eight homeowners in the U.S. is in the same situation. You are
to be congratulated for admitting you need help, taking action, and finding a
professional who can work with you toward a solution.
With recent estimates showing 40-60% of U.S. sales will be short sales or
foreclosures, you are not alone.
Myth #5 Short Sales are Impossible and Never Get ApprovedThis is a
complete falsehood. Are short sales more difficult to execute? Yes. Do you, as a
homeowner, need to learn about a new process? Yes. Are they impossible?
For example, agents with the Certified Distressed Property Expert® (CDPE)
Designation receive thousands of short sale approvals on a monthly basis. These
professionals have undergone extensive training in methods to help homeowners in
distress and process short sales. While there are no guarantees in any
transaction, more and more short sales are being approved regularly. This is far
from an impossible process.
Myth #6 Banks are Waiting on a Bailout and Not Accepting Short
SalesYou may have heard this, but the reality is that banks (and the U.S.
government) are trying to do anything they can, within reason, to avoid
foreclosing on properties. It is preposterous to believe they would deny a short
sale in hopes that some future legislation would pass and pay them for losses.
Today, more banks are aggressively pursuing short sales and working with
agents who understand how to process them. Freddie Mac recently hosted a
national training Webinar for real estate agents where they expressly stated the
organizational goal of "eliminating distressed assets through modification or
Myth #7 Buyers are Not Interested in Short Sale PropertiesThis is a
myth that potential sellers hear all the time. Thankfully, this is just not
true. In fact, many agents are getting calls from buyers who say they only want
to look at foreclosure and short sales.
For buyers, short sales and foreclosures have become synonymous with "good
deals." More specifically, international buyers are targeting these properties.
Listing with an experienced agent who is educated in the short sale process will
provide you with a great chance of quickly seeing a contract on your