SHORT SALES AND SELLERS - AN EXPLANATION
Why would a seller want to do a short sale? If they have attempted to get a loan modification (which rarely goes through), and want to hopefully be able to buy another home as soon as possible (could be as soon as two years after the short sale is closed) depending on down payment, attempting a short sale would probably be the way to go. However, here is my disclaimer: a seller needs to speak to their attorney and possibly a CPA to see what the best thing is for them to do.
OK, disclaimer aside, a seller does have other options. If a seller cannot afford their current mortgage and cannot sell their property to cover the current mortgage balance along with closing costs and would not be able to rent out the property to cover the entire mortgage, there are other options:
- loan modification - these rarely go through
- short sale - I've read that about 50% get approved although I've had much better luck
- deed in lieu - banks don't usually opt to do this as they then forgive you for any deficiency
Since loan mods and deeds in lieu rarely happen, a seller is usually left with trying a short sale or letting the property foreclose. What are the pros and cons of selling short, or why bother with a short sale?
Short Sale Pros
- There is a possibility you can purchase another property sooner than if you foreclose
- Depending on the lien holder and negotiations, you could possibly get the deficiency waived
- If the deficiency is not waived, a short sale normally sells for more than a foreclosure, so there would be less of a deficiency
- If you are emotional about your current property, you will know it has been purchased and will not be sitting vacant and start to deteriorate
- You will hopefully not bring the value of your neighborhood down as much with a short sale vs. a foreclosure
Short Sale Cons
- It can be an emotional roller coaster
- You must provide the lender with a lot of mandatory paperwork and must disclose all assets and reasons for your hardship
- You will possibly have a long wait after accepting an offer
- Your agent/attorney will only have so much control of the process and some banks are notoriously bad in handling short sales
- You could wait months just to get "no" for an answer, either because of price, your financial situation or whatever excuse the bank has
- You need to learn to step back from your emotions to your home during the short sale
- The short sale might be approved but the lien holder will not waive any deficiency
- You might be required to come up with cash to close if the bank requires it (usually due to having too many assets, according to the lien holder)
- The bank could foreclose on you even if you have a buyer and/or a closing date set! I've never seen this happen but I have read about it happening to others.
You need to balance the pros and cons, along with professional advice of your attorney and CPA. Please note, when you foreclose the deficiency is not forgiven and they could come back after you. I will write another post regarding foreclosures. You also need to find a REALTOR experienced in short sales and even though I am very experienced I also use an attorney that is also very experienced in short sales. We work as a team.
If you decide to sell your home "short" and you are in my service area, give me, Judy Orr, a call at 708-536-8200 or use my Contact Form.