Short Sale SellersCan a Short Sale Be a Good Fit For You?
Short sales are quite common in this real estate market due to the number of properties losing their property value in this slumping housing market. It’s estimated by the National Association of Realtors that forty percent of homes sold today are in distressed situations and are being sold as either a short sale (pre-foreclosure) or foreclosure property.
Lenders do not like to change the terms of the loan, but they would rather change terms than take a loss on it. But in today’s market, many homeowners still cannot hold onto their homes even after terms are changed due to hardships or strict restrictions on obtaining a change in terms to their loan(s).
If a home has more than one loan, it can throw a curve ball in a short sale situation due to the amount of time and parties required to approve the deal. Multiple parties will need to agree on the total loss and mortgage insurers and home equity lenders may also need to get involved in the short sale process. To successfully prove a sale, the seller will need to support their claim of financial hardship with a letter, pay stubs and/or bank statements.
Even when a lender has agreed to do a short sale, the lender has every right to request the homeowner to make future payments on the difference owed – although the homeowner doesn’t have to agree. The up side, is that no taxes are owed on the differences due to the Mortgage Forgiveness Debt Relief Act. Although, this act does not protect 2nd homes or investment properties.
As far as your credit score, a short sale will appear on your credit report and will damage your score to a degree. You will have to pay higher interest rates for borrowing down the loan, but the impact on your overall credit score will not be as damaging as a foreclosure or bankruptcy would have.
If you are the buyer, be prepared to wait…patiently. Short sales are not short at all and a short sale buyer needs to be able to wait at least 3 months for an approval from the lender. Trying to apply pressure on the bank may not work as they will take their time due to the overwhelming numbers of short sale requests in the pipeline. A buyer can speed up a decision if they can offer to pay in cash or make an offer that is equal to at least 90% of what the broker thinks the home is worth in today’s current real estate market.