upsidedown
Anyone who has been a regular reader of this blog knows that I am not a fan of short sales. I have represented both buyers and sellers and have some experience. it isn’t like I am one of those talking heads on the TV who talk authoritatively but they just talk.
A short sale is when a banks accepts less than what is owed on a home as payment in full. As you can imagine a short sale looks bad on a credit report in fact it looks almost as bad as a foreclosure. Usually the seller is behind on the payments. Some banks will not work with owners who are behind on payments and some banks won’t work with those who are. Honestly I am not making this up I have witnessed it.
When a short sale works out and the bank actually allows the sale sometimes the people who benefit the most are the real estate agents involved. The buyer would pay less for the home if it were a foreclosure. Sure the sellers credit rating may be slightly better than it would have been if the bank had foreclosed on the loan but only slightly and they still can not purchase a home or get credit.
To some a short sale seems more honorable than a foreclosure. In a foreclosure the bank gets the home instead of money, in a short sale the bank gets some money owed but not the home. Trying to prevent a foreclosure with a short sale is a gamble. There are no guarantees that there will be an offer on the home and if there is there are no gaurantees that the banks will accept the offer before they foreclose. I have seen many cases where the home being offered as a short sale ends up being a bank owned property while there is an offer on it.
Before considering a short sale find out how it will impact your credit rating. Make sure that the bank really is agreeing to a short sale and that means they can not file a judgement later to get the rest of what is owed on the home.
If you want to prevent foreclosure and can not pay off your mortgage and owe more on your home than it can be sold for contact the Minnesota Home Ownership Center first.
Related article:
Will a short sale work for those who owe more than thier home is worth? Short sale myths
Short sales are complex to say the least. There are so many details and requirements that my hat goes off to all sellers who have made a short sale work. A big tip of the hat goes to the REALTOR(R) too. ’tain’t easy on either side of the transaction.
Short sales can benefit a buyer if there is a competitive market – espcially in low cost homes. In our area in Northern CA 33% of sales this past quarter were ALL CASH – mostly investors buying forclosed properties. The asset manager of these banks will sell at an extreme discount for all cash. Most cash buyers don’t go after short sales so it gives my clients a better chance of obtaining a home. The last one I did with a buyers took only 10 weeks from start to finish. I think it is better for the neighborhood if the house is sold as a short sale vs. being left empty for a year until the bank decides to sell.
Good point. short sales may be better for the neighborhood if they are not vacant for a year.
I have attempted to purchase shorts and foreclosures and we are looking at a short sale/foreclosure ourselves. It amazes me how out of touch the lenders are. Everlovin’ Blockbuster can find you if you’re a couple of days late with a $30 DVD but most of the lenders I’ve worked with have no clue who is handling a given sale and lose thousands of dollars in additional losses because of it.
Anyone working with such a lender would do well to make sure they ALWAYS get a name and a phone number. Anything less is just wasting time. And when that “anyone” is a real estate agent … Wow. That is one tough way to make a sale.
You brought up some good points – however I want to stress the importance of why a Short Sale is better than foreclosure. With a Short Sale a seller may qualify to purchased a new home in 2 years compared to 7 with a foreclosure — This is Huge. The key point of a Short Sale in time of Recovery. Read my blog http://www.SarasotaShortSaleBlog.com for more information. Thanks for sharing.
what makes you say that? Who told you that?
Teresa, I’ve seen similar advice in a few places on the ‘net. Two years is, in my reading, EXTREMELY optimistic. But many sites do state that a short sale will ding your credit for about half the length of time of a foreclosure — more like 3 years instead of 7.
This seems to be especially true if you had a decent credit rating going into the short sale. Too many people were trapped underwater by this fiasco to kiss them off as prospective borrowers for the next 3-5 years. Lenders’ quarterly profits will cause them to reconsider how much one’s credit is hurt by a short or foreclosure.
sd – I get what you are saying but for most 3 years is optimistic. I agree that lenders will need to lend money to these people but I don’t know that people who did the short sale will recover faster and we are still in a situation where most of the attempted short sales do not result in a sale.
web sites that have information on them provided by the real estate industry are far more likely to state that a short sale will hurt half as much as a foreclosure. We need short sales to survive as an industry and there are entire businesses built around teaching agents how to do a short sale and how to market their services.
Great points. Short sales are so difficult because they are relying on a corporation making a financial decision. (Which is controlled by their bottom line.) I have seen some ‘good buys’ especially when timed at the end of the year or financial quarter. However, questionable how ‘good’ the buy is when time and energy are accounted!
I would agree there are some good buys and some are short sales. I have just observed that homes that were listed as short sales but do not sell and become foreclosures usually turn up on our MLS at a lower price than they were on as foreclosures.
Teresa,
I am a regular reader of your blog, and also an attorney that represents sellers in short sales. I generally agree with your take on short sales. They are certainly complex, and the banks are difficult to work with. However, in my experience, getting an attorney or law firm involved helps the process immensely. Even then, a lot of deals fall apart because its not in the best interest of the lender to accept the offer. A lot of buyers think they can low-ball an offer just because its a short sale. I also think lenders are buried in short sale requests, and most lenders were not prepared to handle the number of requests. Some lenders are great to work with, some are terrible. Which lender you’re dealing with makes a huge difference. The Realtor for the seller makes a huge difference, not to mention how motivated the seller is to actually sell. I don’t agree with your take about the sellers credit score though. I’ve read from multiple sources that scores take a 75-100 point hit with a short sale, and a 200-250 hit with a foreclosure. Fannie regulations state that you must wait only two years after a short sale to qualify, versus five years with a foreclosure. Just some thoughts!
You are right in that the lender makes all the difference since they do have to approve the sale. I worked with a lender once from a small bank and the short sale was a breeze. I am having the same experience with buyers. Mention the words short sale or foreclosure and they offer much less. I know there are some short sale success stories but it really is a long shot.
More than 50% of homes that trying to make a short sale fail. In some areas the rates are as high as 95%. So if you really think you want to own a home in the future then it might just be easier to let the house go. Otherwise you are putting off your start date to financial recovery.
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