What is a short sale????

Asked by Judy, 38016 Mon Aug 30, 2010

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9
Jo Shaner, , Memphis, TN
Mon Aug 30, 2010
Dear Judy,

You have your information outlined below - so you should know what a short sale is all about right.

Seeing your zip code address, I would strongly suggest you contacting Suzanne White, the agent below. She is an outstanding local agent that is extremely well versed in short sales. She knows how to navigate the tricky waters here. This is not a transaction you want an amateur to take on - this is her field of expertise.
1 vote
RE/MAX On Po…, Agent, Memphis, TN
Wed Sep 5, 2012
Jason, my husband is a short sale specialist in the Memphis Area.

Call us today if we can help answer any questions for you!

Laura and Jason
0 votes
Shane Powell, Agent, Brentwood, TN
Mon Aug 30, 2010
Hello Judy,

A short sale is when a homeowner owes say $100,000 to the bank for their loan. But the market has feel to the point that the homeowner can only sell it for $90,000 plus they still have to pay fees like closing costs and realtor fees plus any interest to the bank for being behind. The bottom line is they are upside down in their house. If they can't make the payments then this creates a short sale and if someone who can make the payments just has to move for whatever reason but can't sell the home in todays market to pay off their mortgage that creates a short sale.

The process and purpose of them are to avoid bankruptcy and foreclosure by asking and getting approval from the bank to forgive some of the mortgage. In the example above the bank may take $80,000 instead of the $100,000 you owe. BUT, your credit will get dinged and in some cases you have to pay taxes on the $20,000 they forgave. The government sees that as income since you were released from your debt.

Hopet this helps,


Shane
Web Reference:  http://www.shanepowell.com
0 votes
Andrew Warbu…, Agent, Temecula, CA
Mon Aug 30, 2010
Judy.
Have yu made an offer on a Short Sale yet? If you have you should probably ask some questions of the Listing Agent.
1: Do the sellers have judgements on their credit ? If they do they will need to pay them off before the Short Sale closes - if they don't have the money the short sale will probably not close.
2: Is there a First and a Second lien against the property? If so have both lenders been contacted and DOES THE FIRST LENDER HAVE A MAXIMUM PAYOUT to second lien holders? If they do and that amount is less than the required payoff from the second then your short sale may not close.
Ask questions, be thorough - there is nothing worse than sitting in escrow for 6 months only to find out that your deal cannot close and then you have to start all over again!
Regards from
Andrew Warburton
G7 Realty Inc
Lic 01065333
http://www.andrewwarburton.com
PS - you may want to read some of my Short Sale Blogs here on Trulia.
0 votes
Keith Sorem, Agent, Glendale, CA
Mon Aug 30, 2010
Judy
Your profile says that you are a home buyer. Looking at the link below, Trulia reports that there recently have been 250 foreclosures and about an equal number of homes on the market and homes sold.

Some things that you should know:
It is less expensive for a lender to sell a property short than to foreclose. When a borrower is going to default on their mortgage, the lender will contact the borrower when they are late on their first payment and try to find out what the situation is. Given the weak economy lenders are very attentive to borrowers that make either late payments or miss a payment, and in many cases, if the borrower is in trouble financially, the borrower simply walks away from the property and the lender never hears a word from them.

Because of the number of foreclosures (250 according to Trulia), that probably means that lenders in your area are trying to AVOID a home going into foreclosure, so they WANT to have a seller in trouble sell it BEFORE they have to foreclose.

Typically that means that a short sale home probably has "deferred maintenance", meaning peeling paint, weeds in the yard, dead grass, and probably some items that need repair. Depending upon the lender's policies they may or may not be willing to pay for any repairs. Many short sales are sold "as is".

When a borrower approaches their lender for a short sale, the lender will require the borrower to prove the reason that they can no longer pay the mortgage, ask for financial statements, a letter describing what happened, etc. Then the lender can decide if they would rather have the borrower sell short, or foreclose.

From your perspective, you need to know if the short sale has been approved. Some lenders review the evidence submitted by the borrower, and will issue an approval for a certain price. Other lenders will say "we will issue an approval once you bring an offer". Sometimes obtaining approval can take one day, some times months. It depends on the lenders. Sometimes there is more than one lender, and this complicates things big time. Many people purchased homes with "no money down" and have both a "first mortgage", the primary and larger mortgage, and a "second" which is typically smaller, around 10-20% of the first loan.

From your end the problem can be if the "first" and "second" cannot agree on a settlement. Normally, because the "first" is in "first position", that means that they are first in line for proceeds from the sale. The "second" is junior, and normally they have to settle for a small fraction of what they are owed, usually around 10-20%.

So a home with a $200,000 mortgage probably has a first of $160,000 (80% of the home value), the second is $40,000 (20% of the home's value). When it's time to sell, the first pays the closing costs (title, escrow fees, transfer fees, probably back taxes, the real estate commissions, attorney fees, etc.) So if the home is now selling for $120,000, both lenders are going to lose money. The first lender, after paying the fees, might have to write off $10,000 in closing costs, pay the second $$5,000, leaving them with $105,000.

But sometimes the second wants more than the first will allow, and then things get really complicated. On top of that, sometimes there are other liens on the property, like a mechanic's lien if the home owner had some work done on the house, then failed to pay. All of the liens need to be removed before the title can transfer.

For you, you need to understand (make sure that your Realtor finds out) exactly what the circumstances are:
1. Is the short sale approved by all lienholders? At what price?
2. How much are the lienholders losing (sometimes if there is a really large loss they will simply foreclose)
3. If the approved sale price close to market value?
4. Many lenders, once they give the ok, want you to be able to close in 30 days, so make sure that your Realtor and your lender understand the requirements. I have had very bad experiences with buyers that do not have their act together and asking for a time extension in a short sale is NOT a good idea.
Sorry this is so long, good luck.
0 votes
Suzanne White, Agent, Memphis, TN
Mon Aug 30, 2010
Judy,

Now that you know what a short sale is make sure you hire a buyer's agent who knows how to represent you if you decide to pursue a short sale home purchase. They can absolutely be great values for you as a buyer. Make sure your offer is written to set you up for success - agreement to the terms of the contract by the seller's lender. You must know what type of loan the seller has so that you know how to write your offer. Our team just recently conducted a training class for buyers' agents to help them understand how to write an offfer that will be accepted when working with a short sale property.

Best of luck to you and don't be scared away by them. Just arm yourself with the knowledge you need and happy home shopping!
0 votes
gabriel palo…, Agent, Pompano Beach, FL
Mon Aug 30, 2010
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.
0 votes
Scott Godzyk, Agent, Manchester, NH
Mon Aug 30, 2010
Judy a short sale is basically where the sellers mortgage company or bank will lower what they owe in order to allow them to sell it at what it is worth in todays market. If you are looking to buy a short sale, it can be a wonderful opportunity to get a deal if done right, you should hire a buyer broker who is well experienced in short sales to guide you.

You should have time (most short sales take 3-4 months to close) and patience. If done incorrectly can be very stressful, costly and not get approved.

Please see my blog with tips and suggestions on how to purchase or sell a short sale.
0 votes
Jeanne Feeni…, Agent, Basking Ridge, NJ
Mon Aug 30, 2010
Hi Judy, a short sale is a transaction in which the market value of the property is less than what the owners/mortgage holder owes the bank. Given the decline in the market on the heels of a period in which low down payment loans were prevalent, you can appreciate why they are so common now. Think of short sales as step 1 in what may become a foreclosure over time.

Best,
Jeanne Feenick
Unwavering Commitment to Service
Web Reference:  http://www.feenick.com
0 votes
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