Do you own Phoenix real estate or Scottsdale real estate? Are you having a hard time making your mortgage payments? Have you thought about a short sale in Phoenix? “Short sales may be a new best option for Valley homeowners struggling to avoid foreclosure,” wrote the Arizona Republic’s Catherine Reagor earlier this month.
Here’s how a short sale works: the homeowner sells the home for a market price that is less than (short of) the amount the homeowner owes on the mortgage. The owner then pays the lender – who, of course, must agree to the deal – and the lender forgives the difference between the sale price and the mortgage amount (so the homeowner doesn’t have to come up with, say, $30,000 in cash).
Why would a lender agree to such a deal? Because the actual process of foreclosing on a home is very expensive for the lender – often costing upwards of $25,000 and a lot of time (time that the lender isn’t getting paid interest and principal on the loan). So it can often be in the lender’s best interest to simply cut its losses and sell short.
And while I don’t know if a short sale is a new or best option, it can be a good alternative to foreclosure, if:
- You simply can’t afford to pay your mortgage, even if the lender agreed to a reasonable modification
- The current market value of your Scottsdale home or Phoenix home is less than you owe on your mortgage (more than half of Arizona homeowners are likely in that boat)
In those cases, a short sale might be right for you. A short sale is almost always better than a foreclosure because:
- A short sale will negatively affect your credit rating, but not as much as a foreclosure
- Typically lending guidelines aren’t as strict in terms of how long after a short sale you’ll have to wait to get another mortgage; with a foreclosure, it’s at least 2-3 years
That’s probably why pending short sales in the Phoenix real estate market rose from 1,448 in January to 9,343 in October. According to the Republic, nearly 40 percent of Scottsdale homes for sale and homes for sale in Phoenix are short sales.
Speeding up the process
Problem was, the short sale process took a long, long time. Once a homeowner received an offer on the home, and sent that offer to the bank for approval, the bank would often take 60 – even 90 – days to approve the short sale. That wait was often a strain on buyers, especially those looking to move relatively quickly.
But now that the Obama administration has asked lenders to approve more short sales — in an effort to avoid a huge wave of new foreclosures that could derail our real estate market recovery — things are speeding up. According to the Republic article, “ lenders are being encouraged and paid by the federal government to expedite short sales for homeowners who qualify for help from the federal housing plan but aren’t candidates for loan modifications. Some Phoenix homeowners are now receiving approval in days.”
The government will help
The Obama administration has changed its “Making Home Affordable” program a number of times to reflect what’s happening on Main Streets around the country. Its latest change is to add support for “foreclosure alternatives” including Deed-In-Lieu (when the homeowner basically gives the house back to the lender) and short sales. For homeowners eligible for the MHA program, “foreclosure alternatives” includes:
- Incentives for servicers to pursue alternatives to foreclosures
- Borrower incentives to cover relocation expenses to homes that are affordable
- Streamlined process combining short sales and deed-in-lieu transactions
To see if you qualify for MHA, visit http://makinghomeaffordable.gov/eligibility.html.
Thinking about a short sale in Scottsdale or doing a short sale on your Phoenix home? Click on the “comments” link below each post and join the conversation!
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