I blogged recently about short sales being up 600 percent from two years ago. I’ve also blogged recently about how – in my opinion – short sales are the new wave in real estate.
It made me think that anything with that much demand – whether or not you are considering buying a bank-owned property or selling your home in a short sale – is worth knowing more about. So I thought I would offer a quick overview of short sales. As always, please contact me if you have any questions or would like help in the process (either buying or selling a short sale). I am happy to help.
What is a short sale?
In brief, it is a sale of real estate in which the purchase or sale price falls short of (is less than) the balance owed on the home loan. What makes it different than a foreclosure is that the bank agrees to the sale, accepting a moderate loss versus the borrower simply walking away entirely. Additionally, the owner-borrowers are able to mitigate damage to their credit history.
The bank evaluates potential short sale transactions and, in doing so, determines how much equity is in the properties and what the probable selling price would be (usually taken from an appraisal). Because home prices have fallen a great deal, approximately 25 percent of homeowners are now under water. A short sale, when possible, makes a lot of sense for borrowers who owe a lot more than what their home is worth and for lenders who want to limit their risk to an amount that is less than what they would lose in a foreclosure. A foreclosure is not good, obviously, for an owner-borrower, but it is no panacea either for a lender.
Qualifications for a short sale
Lenders will be looking for the following criteria to be met by both the home and homeowners before considering a short sale:
- A financial hardship must exist and be proven. Loss of a job, loss of income, illness of the borrower(s), divorce, death or declining local market property values are examples of such hardships.
- Borrowers must be experiencing a monthly shortfall. Borrowers may be asked to provide a monthly profit and loss statement or complete a financial worksheet to prove that there is not enough income to pay all of the household bills.
- Homeowners requesting to be considered for a short sale must lack the means to repay the deficit. Lenders may request copies of tax returns or other financial statements to determine whether or not a borrower has other means besides income to pay off the short fall
As I mentioned before, hiring a real estate professional who has experience with short sales is extremely helpful. This was a brief overview and there is a lot more to know especially in regard to your specific situation.
Best of luck and let me know how I can help.
Subscribe: 
