Short Sales

I decided to post this entry about short sales because the more that I talk with clients the more I realize that people don't understand what the term "Short Sale" means or what a "Short Sale" accomplishes. Most people that I talk with think that a short sale is a quick sale in the aspect of time. This train of thought is incorrect. The term Short Sale means that a home owner is selling their home for less than what they owe instead of Foreclosure. In order to have a Short Sale, you must talk with the Mortgage Company first to see if you qualify for a Short Sale. You do not have to be behind on payments, however you do need to be going through a hardship (i.e. lost your job, sickness, lost primary income earner, etc). No matter what you do, do not stop making payments on your home so that you can do short sale, just because your behind does not mean that you will be automatically approved for a short sale. Short Selling is not new, it has been around for quite a few years. It may have changed names or be called different things depending on what part of the country you live in. You may be asking, "Why would a mortgage company let you sell your home for less than what you owe?" Here is the answer: A mortgage company is a business and never forget that they are about making a profit, it is how they keep their doors open and lights on. Mortgage companies (i.e. Banks) spend millions of dollars foreclosing on properties that then sit vacant being vandalized, and while all this is going on the house is losing value and deteriorating from time. Yes a vacant home deteriorates a lot faster than a lived in home. So it is imperative that the bank sells the home as fast as possible and for as much as possible. So lets throw out a hypothetical situation where the bank has an option to either foreclose or do a short sale:
1. Foreclosure: You are the bank and you foreclose on a house that has a mortgage of $100,000 and is worth $120,000, this will cost you $5,000 to foreclose and clear up any other leans on the property so that you can then re-sell it. You list the home with a reputable Real Estate firm. You ask $120,000 for the home trying to recoup your expenses and the house then sits on the market for three months (because remember in today's market you are also competing with other houses that were foreclosed for cheaper amounts and can therefore be sold cheaper than what you can sell for). Three months down the road you have dropped your price from $120,000 to $99,000 and will entertain offers that are now around $90,000. So the house finally sells for $90,000 and you have about $1000 in closing costs. So lets review: You spent $5000 to foreclose, $1000 to close, $3600 to sell, and you sold for $10,000 less than what you loaned on it, plus it sat for at least five months(3 on the market, 1 getting the previous owner out and 1 under contract). You the bank has lost $19,600.
2. A Short Sale: You approve a Short Sale on the above mentioned property before foreclosure proceedings begin. It stays on the market while you still get some form of payment from the homeowner and the house is still occupied and being cared for. Your market for potential buyers is up because a lot of buyers will not look at foreclosures. After several months, you receive and accept an offer of $95,000. Lets see now what you have got: After closing you still have the $5000 that you didn't spend on Foreclosing, You sold for $5000 more than you did as a foreclosure so you have automatically made more money and probably sold the house more quickly, and all the while you still had a tenant who was making some type of payment to you while they were there.
In closing, the term "Short Sale" refers more to the fact that the bank is selling for a smaller amount than the mortgage they hold on the property. It has absolutely nothing to do with the amount of time it would take to purchase, or that the purchase transaction will be a quick one. In fact, the process usually takes quite a bit longer, and you should know as a buyer that you will need to go into the process expecting it to take several months to get to the closing table. In the end, however, everyone can come out with a great deal.
I hope that this helps any of you that may have had questions about a Short Sale or were just wondering what the term meant. Thanks for reading my blog and remember to checkout my website for more great information http://www.waynetrammell.com/