For all the homeowners who are upside down and can no longer make their mortgage payment (because of either a job loss, divorce, or an option ARM that's resetting higher), up to now the only option was, well, letting the bank foreclose. That's not a good option since a foreclosure sticks on your credit record for at least 10 years. But some experts are now advocating a "short sale." This is a case of a distinction with a difference: If your bank agrees to a short sale, you then hire an agent to find a buyer for the house, you sell the house for a loss, and with the bank's blessing, they agree to eat the loss. (although they could still demand the homeowner make some kind of payment or share the loss).
To make the whole thing work you'll probably need to find a real estate agent willing to work 3 times as hard for the same or sometimes smaller commission (which makes the bank a little more willing to absorb the loss). You will also need to be willing to do some of the paper work required for final short sale approval, including provide finical statements and tax records. and you'll also need to scale back your own spending.
The best option is to find some way to stay in the house-by first, seeing if the lender is willing to restructure the loan, or forgo a couple of monthly payments to help you get back on your feet. More and more lenders are willing to make accommodations to avoid taking the property back. Banks hate to take over homes, especially in a declining market, so you shouldn't underestimate the willingness of a bank to make concessions
If you need help to work your way through the the confusion give me a call.
Short Sale -- A simple definition
Great post, glad you are here and addressing these deals. I have a question maybe you can help me with.
As far as a BUYER is concerned, what is the difference, preference between a SHORT SALE and a FORECLOSURE. I understand that as far as the seller is concerned, a short sale is preferable because it leaves his credit in better shape. What about the buyer? Which is a better deal, financially? I understand that the "catch" to a short sale is the eternity of time the deal can take, but what else?
I have a property I'm looking at for my son that is currently a short sale on a SFH that sold in 2006 for $399. The seller approved an offer that the bank countered at $276 a month or so after the offer. The buyer had walked away by then. The bank filed for foreclosure Oct 2. The question is is my best option to make an offer while it is still a short sale or wait until it's a foreclosure as far as the price I will pay? Why? What are my determining factors? I have time to wait.
Patricia -- I would push the short sale - because
1.) you are the only "buyer" at the table and the bank is willing to be more favorable about terms
2.) after the foreclosure the bank will try and get the highest market value as it relates to the loan amount. Typically a short sale is sold at 70 -80% of market or loan value. And after a foreclosure action the new REO listing agent will be regarded to obtain the highest market value.
If the buyer is MIA (missing in action) try and track them down long enough to get a Power Of Attorney so that they will not be regarded to continue to be available for the short sale
Patricia -- I would push the short sale - because
1.) you are the only "buyer" at the table and the bank is willing to be more favorable about terms
2.) after the foreclosure the bank will try and get the highest market value as it relates to the loan amount. Typically a short sale is sold at 70 -80% of market or loan value. And after a foreclosure action the new REO listing agent will be regarded to obtain the highest market value.
If the buyer is MIA (missing in action) try and track them down long enough to get a Power Of Attorney so that they will not be regarded to continue to be available for the short sale
Thanks Eric. We will heed your advice.
great post, nice and simply put information thank you