Short Sales: Your Options As a Homeowner
By Ted Ricasa
Since the unofficial beginning of the U.S. economic crisis in 2007, the phrase “short sale” has gone from being an obscure real estate term to becoming a part of nearly every homeowner’s vocabulary. Nevertheless, many people continue not to understand what a short sale really is. In and of itself, a short sale is neither good nor bad inherently. Whether it is in the best interests of the homeowner, however, is another issue altogether.
In virtually every case, a short sale is preferable to a foreclosure. This does not mean that it is always the best alternative to foreclosure – that depends on the individual case. What may be the optimal solution for one homeowner may not be optimal for another.
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What is a short sale?
A short sale is the lender-approved sale of property for less than is owed on it. In most states, lenders can pursue a deficiency judgment, meaning they can sue homeowners for the difference between the amount the home was sold for and the amount still owed on the mortgage. In most cases, lenders waive the remaining balance; however, they are generally under no obligation to do so.
In non-recourse states, when banks and other lending institutions approve short sales, the debt is considered settled. According to the laws of these states, lenders cannot collect deficiencies once a short sale is approved. Currently, there are twelve non-recourse states, including:
- North Carolina
- North Dakota
How would my home qualify for a short sale? Can anyone do it?
In order to qualify for a short sale, you must be able to demonstrate to your lender that:
- Your home is worth less than is owed on your mortgage
- You are faced with a demonstrable long-term financial hardship
Proving the first of these points can be tricky, which is one reason enlisting the professional help of Fast Home Help could be beneficial if you are considering a short sale. We can evaluate your circumstances to determine whether you qualify for a short sale before you approach your lender and volunteer information that may ultimately be used against you.
Proving the second point is generally much easier – after all, you are unable to make your mortgage payments for a reason. A brief document presenting a straightforward, honest, specific description of your financial hardship will generally suffice. You don’t need to overdo it; avoid emotional pleas or overlong explanations. If you lost your job due to company layoffs, write precisely that. If you are facing illness, divorce, or another situation with clearly adverse economic effects, let the hardship speak for itself. Explain briefly how both you and the lender will benefit from a short sale. Brevity is the soul of wit – and the soul of a good hardship letter.
Why would a bank prefer a short sale to loan modification or even foreclosure?
In a word: money. The foreclosure process is long and expensive. In considering a short sale, lenders aren’t trying to save homeowners from foreclosure – they’re trying to save themselves from foreclosure. In most cases, they would far prefer to have a large chunk of what they are owed as soon as possible to going through the drawn out process of foreclosing upon the home.
In recent years, some banks – including Chase, Wells Fargo, and Bank of America – have offered certain homeowners financial incentives to choose short sales over foreclosures. These financial incentives have ranged from covering moving and relocation costs to offers of tens of thousands of dollars. This is not to say that you will receive such an offer from your lender, but it does show just how motivated banks are to encourage short sales.
Whether a lender prefers a short sale to a loan modification depends largely on the case. In general, many lenders prefer short sales because, again, they represent money in the hand. They have no guarantee that homeowners will repay their debts even if the loan is modified; there is still a chance that the home will end up in foreclosure. When lenders feel that they are more likely to recoup at least most of their investment through a short sale as opposed to a loan modification, they will have strong motivation to prefer the former.
How common are short sales?
Over the past six years, short sales have become increasingly common in the United States. According to the Office of the Comptroller of the Currency (OCC), the number of actions taken to salvage homes by their owners was down 36.7 percent in the first quarter of 2012 over the first quarter of 2011. Conversely, the number of short sales increased by 19.7 percent quarter-over-quarter.
According to the Center for Responsible Lending, approximately 118,000 short sales were approved in 2011 California alone.
What are the disadvantages of short sales?
Short sells can be godsends to homeowners when they are carried out properly and efficiently. The problem is that short sales involve banks, often on behalf of both the seller and the prospective buyer, which means that delays can and do occur. Attempts at short sales do not halt the foreclosure process (unless a deal to postpone foreclosure is worked out with the lender in writing). Too often, potential deals fall through before the lender has evaluated the sale for approval. In other cases, delays on the part of the bank approving a loan for the prospective buyer can lead to the home being foreclosed upon before a deal can be finalized.
According to the California Association of Realtors, 60 percent of short sale offers in the state in 2011 failed to materialize in a closed deal. As a result of this disturbing trend, the Federal Housing Finance Agency established the rule that lenders must respond to short sell requests within 30 days and either approve or deny a short sale within 60 days.
How can Fast Home Help assist me with a short sale?
It is possible to go through a Realtor and try to close a short sale before your property is foreclosed upon. Thousands have had success using this method. However, thousands of others have ended up losing their homes before a deal could be reached, let alone approved by their lenders.
If you qualify for a short sale, Fast Home Help can help you by:
- Working with your lender – Our experienced real estate professionals know how to negotiate with lenders and arrive at a deal that is fair to them and fair to you.
- Making immediate all-cash offers – Banks are motivated to work with us because they know precisely what they are getting – cash in hand, without any of their money going to real estate sales commissions, escrow fees, recording fees, county sales transfer taxes, and other expenses associated with traditional home sales.
- Cutting out a second bank – If you work with a Realtor, your prospective buyers will almost certainly have to involve a second bank in the process in order to secure a loan. This creates more delays, paperwork, and hassle for all parties involved.
- Providing you with peace of mind – We’ll do the hard work for you. We’ll deal with your mortgage, and you’ll be afforded a fresh start. While we cannot guarantee it, there is even a chance that you will be in better financial shape than before you initiated the short sale.
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You have nothing to lose by contacting our team of knowledgeable real estate professionals if you are considering a short sale. At no point will you be pressured to accept our cash offer if we make one, nor will we ever advise you to take an action that isn’t in your best interests. Even if you choose ultimately not to work with us, you will emerge from our interactions better informed and more aware of your rights as a homeowner. If you do choose to work with us, you can rest assured that we will help you arrive at the best possible solution for your particular case.
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Ron did an outstanding job buying our townhouse. We decided to go with Ron because we didn't want to wait the several months that are normally required when you sell your property yourself or through a Realtor. It was a quick transaction handled by an independent third party escrow and we received our money in hand quickly. - Valerie C.