What do you do when you're in debt and want to keep your house but are near the foreclosing stage? Consider a short sale. A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for. It's a negotiated settlement between a mortgage broker and yourself. This can be your ticket out of a major financial catastrophe when you're out of a job, have other financial burdens or if you're in the middle of a divorce.
Ed Fontes, Regional Loan Production Manager at American Home Loans in Roseville has a few things to say in the subject. “Forget the stigma of short sales in the 90's.
Today,
banks are being more cautious in making sure it is a hardship created by outside
influences so they are not granting a lot of the short sales to just anyone. Banks want to be convinced without a doubt that the short sale is the answer to your problems to prevent a foreclosure. Furthermore, there are lenders out there who don't look out for their client's interests and hook people up with the wrong loans, and that often leads to a short sale.”
Mike Toste, Realtor for Coldwell Banker for Diez and Lies in Sacramento, offers his expertise from a bank's perspective on short sales. “Lenders are fine with doing short sales as long as there is a genuine circumstance in the default.”
If you decide to sell your home to avoid foreclosure, the way to handle this depends on whether or not you have equity in your home. You have equity in your home if there is enough money to pay off your mortgage in full after all the expenses are paid when you sell. If not, then you should probably apply for a short sale.
“People have a bad perception about short sales,” explains Fontes. “A lot of people think they are getting a good deal buying a short sale, but in reality they are buying at market value which is why it is a short sale in the first place.”
According to Scott Thompson, President of Short Sale Resolution Services, “The number of notices of default on mortgages in Sacramento, Placer and El Dorado Counties are up almost triple over last year's numbers.”
“The numbers are really troubling,” says Thompson “It is astounding. In December of 2006, 280 properties in Sacramento were taken back by banks. There are more houses to sell and not enough buyers. There's clearly a supply and demand problem.”
There are several benefits of a short sale for homeowners in dire straits. You avoid having foreclosure on your credit record, plus, while a foreclosure timeline is at least a six month process, a short sale can get you out of a bind in about 90 days.
A short sale is a good way to get the bank off your back. Here is how it works: Imagine your home is worth $200,000, but you owe $220,000 on it. If you were to sell it on the open market at $200,000, you might net $184,000 or $36,000 less that what you need to pay off the loan. A short pay off is where your lender will forgive a portion or all of the short amount.
According to HUD, a short sale accounts for approximately 50% of all workouts on conventional loans. This option is one of the oldest and most frequently used, and is the one that lenders are most familiar with. And because they are familiar with it, it is the option they prefer more than any other.
So where do you begin? First, verify the value of your property. If you are selling the property through a real estate broker, your broker will provide you with an estimate of market value. If you are selling the property yourself, do your own market analysis of the area and your property. Then, add up all the costs of selling the property. If you are using the services of a real estate broker, the broker will provide an estimate of closing costs. If you are selling the property on your own (for sale by owner), call a local title company or real estate attorney and ask, as a seller, what the closing costs will be.
Next, determine the amount owed against the property. This will be the total of all loans against the property. Do the calculations. Subtract the total amount owing against the property from the estimated proceeds of the sale. On a short sale, this will be a negative number. You will also want to contact the lender or lenders. Talk to someone in the customer service department and tell them the situation. They may direct you to a specific department.
