As our economy continues to recover, many homeowner who have been previously "under water" on their mortgages for the past several years are finding themselves reaching a break-even point. For those who aren't there yet and need to sell a home, banks are still accepting short sales and there are still many programs to help keep homeowners in their homes.
What is a Short Sale?
A short sale occurs when a homeowner needs to sell his or her home but the current market value for the home is less than (or "short" of) what is owed on the mortgage. The lien holder (mortgage company) needs to agree to allow the sale for less than is owed. Sellers asking to sell short typically need to prove that they can not afford to sell their property for the full debt owned (they do not have the additional cash reserves needed to pay off the mortgage debt and closing costs), and also need to prove that they have a hardship that requires that is forcing them to sell, whether it be financial or otherwise. Some typical hardships are job loss, medical issues resulting in loss of income, and job relocation.
Selling a home as a short sale is more beneficial to the homeowner than allowing it to go into foreclosure. First, a short sale can help to save a homeowner's credit. With a foreclosure, a homeowner receives a "foreclosure" reported on his or her credit that can make it difficult, if not impossible, to make a major purchase, like another home or a car, for several years, typically 7 to 10 years. With a short sale, the lien holder reports to the credit bureaus that the "debt was settled for less than owed" or something similar to that phrasing, and the short seller will need to wait only 3 years before purchasing another home, sometimes less or not at all, depending on the hardship (ie: job relocation).
Second, a homeowner can save a great deal of money by pursuing a short sale over a foreclosure. The average legal cost to a homeowner going through a foreclosure is around $7,500, according to the U.S. Congress Joint Economic Committee. But because a homeowner's primary lien holder covers most of the costs of selling the home in the short sale (attorney fees, realtor commissions, transfer taxes, title charges, etc.), the seller has very few costs, typically only things like homeowner association dues and outstanding utility bills.
Third, a short sale can drastically reduce the amount of money the lien holder can pursue in a deficiency judgment against the homeowner. In 100% of all foreclosures, the lien holder has the right to go after the homeowner to recoup it's losses, and they have the right to pursue a lawsuit for up to 10 years after the foreclosure sale. With a short sale, most banks will waive their right to pursue a deficiency judgment, or will settle with the homeowner for only a "contribution" toward the short sale of hundreds or a few thousand dollars. The homeowner doesn't have to then spend the next 10 years worrying about their old mortgage lender suing them for tens of thousands of dollars to satisfy their losses.
There are also benefits to the lien holders of short sale properties, in that it costs the lien holder more money to foreclose on a property than it does to allow a short sale. Properties also typically sell at or near market value, where foreclosed properties typically sell below market value. These two points make short sales more attractive to banks and the overwhelming majority will work with their customers to assist with a short sale, rather than to foreclose.
If you need more information or to list your home as a short sale, please call me at 815-582-7656. I hold a Short Sales & Foreclosure Resource (SFR) designation and can guide your through the process.