The Long and the Short of it

There are circumstances that occur that force happy home owners to sell their homes unexpectedly.  The economy has been fragile. Unfortunately, job losses occur.  A short sale sometimes becomes necessary to ward off foreclosure.  The title “short sale” is somewhat misleading; many assume that “short” means quick, implying a transaction that has a short escrow period.  A short sale actually refers to a homeowner’s sale of their home for a net sales price-after commissions, closing costs, etc.- that is less than what the homeowner owes their mortgage lender. A short sale prevents the home owner from going through a foreclosure and possibly eviction and the best part, it does not do as much damage to your credit as a foreclosure. The short sale is tricky, however, and is not the rosy picture it sounds like. A short sale results in the lender losing funds they are owed and the property which secured the mortgage loan.  These transactions can only occur with full participation and agreement with the home owner’s lender. This can be an interminable ordeal.  Lenders move at a snail’s pace.  And because short sales are frequent during a declining market, lenders are often not equipped to handle the deluge of short sale requests that are requested.

Realtors who work on short sale transactions all have stories of trying for weeks to get the short sale “package” to the correct person in the loss mitigation department. Once the package is in the hands of the right person, the bank may have some reason they disagree with the deal between the buyer and seller, and may insist on inserting the bank’s price increase, reduction in closing cost credits, or other major alteration of the terms of the deal. During a short sale, the buyer, seller and even the real estate agents are somewhat subject to the whims of the bank — the deal cannot be done without the bank’s agreement.

Even if a lender agrees to a short sale, the lender and any junior lien holders may not agree to forgive the debt entirely and may require you to pay the difference as a personal obligation. This outstanding personal obligation could result in a subsequent collection action against you. All agreements between you and the lender must be in writing. Consult an attorney regarding whether the lender is entitled to pursue collection of any deficiency.  Always consult someone who understands short sales before entering into this type of transaction.

Of course it is always best to sell your home without using a short sale option.  Things happen to neighborhoods and homes that are unforeseen.  If a homeowner is unable to pay their mortgage, the short sale is a more favorable option than foreclosure.

 

Source: “The Skinny on the Short Sale: HGTV Front Door Real Estate.” The Skinny on the Short Sale: HGTV Front Door Real Estate. Web. 10 Feb. 2013.

 

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