- Upside Down Home – Click for Larger Photo
Rule number one in thinking about a Short Sale: Do NOT, for a moment, allow yourself to believe that the word ’short’ is referring to the length of time the transaction will take! A Short Sale occurs when someone absolutely has to sell their home, but the home is worth less than what they currently owe on it. This is sometimes referred to as being ‘upside down’ with your home – hence, the photo accompanying this post.
Of course, pretty much anyone who wants or needs to sell their home hopes that they will get a great price for it. And even if they can’t get a great price for it, they hope, at least, to get a high enough price to pay off any mortgages that are outstanding on the home. But with market values dropping over the past few years, and with a lot of people who got large mortgages when they purchased their home, which was probably worth a good bit more when they purchased it a few years ago, they are finding that they are simply unable to sell the home for enough money to pay off the mortgage. And if maybe they added a Home Equity Loan on top of their mortgage, the situation could be even worse.
The best advice for people in that circumstance would be to hold onto their home, if they possibly can, until prices have recovered enough for them to at least break even when they sell. But some people simply have to sell – maybe they’ve had a job transfer or some other situation that demands that they move. Or maybe they’ve lost their job and they can’t make their monthly mortgage payments. For people like this, where there is no choice but to sell, their best hope is to attempt a Short Sale. The term ‘Short’, in this instance, simply refers to the fact that there won’t be enough money from the sale to pay off the mortgages – they’ll be short of money.
In order for a Short Sale to succeed, the bank or other financial institution that holds the mortgage has to agree to accept less money than what is owed on the home. The homeowner is still the party selling the home, because they still own it. And they have to approve any offers that are made on their home. But the tricky part is that, after the homeowner accepts an offer, then the file goes to the bank and they have to approve the Short Sale.
If you have a home and you need to sell it as a Short Sale, there is a very specific and detailed set of procedures to be performed, and you should work with an experienced Realtor to guide you through the process. This is not the proper forum to discuss all of the procedures, but if you are interested in this topic, please contact me (or your own Realtor, if you already have an ongoing relationship with a good Realtor) and I will be happy to discuss it with you.
If you are interested in buying a home that’s listed as a Short Sale, here are some things you need to know. First, it is extremely rare for a bank to ‘pre-approve’ a short sale. Extremely rare. In most cases, if you see a house listed as a Short Sale, there is absolutely no guarantee that the bank is going to accept the price that you offer, even if you offer the full list price that the home is being advertised for. That list price is simply a best guess of a figure that the Listing Agent feels the house might sell for. Once an actual offer is received from a potential buyer, then the offer and the Short Sale file are submitted to the bank for its approval. Now, it’s pretty easy to understand that in our current economic climate, banks receive hundreds of short sale offer packages each week for properties that they hold mortgages on. Because of the fact that they are being inundated with these offers and because they do not have enough employees to possibly address all of these offers in a timely manner, it is very typical for it to take 60 – 90 days for a buyer to get a response to an offer on a short sale.
That said, Short Sales DO HAPPEN – all the time. If the bank is convinced of a true hardship situation, they would rather work with a homeowner and allow a Short Sale than be required to spend the time and money to go to court in a foreclosure process. So, if you are incredibly, extremely, amazingly patient and you don’t stress too easily, you can, indeed, get a good deal on a home by going after a Short Sale. Just go into the process with eyes wide open! Again, if you are interested in purchasing a home in St. Petersburg that’s being offered as a Short Sale, feel free to contact me – my contact information is always available at the top of the right hand column on this page. I can help you find a short sale or I can help you with the purchase process of one that you’ve already found.
One final item – there is another type of non-traditional sale that can also provide some incredibly good prices, but is a lot quicker and less painful than awaiting word on a Short Sale. That’s known as an REO. I will cover this next Monday, since I seem to have decided that Monday is the right day to talk about Real Estate topics.
