What are "Short Sales" and Will We See an Increase in Them?
A "Short Sale" is a sale of property where the lender accepts as full value a price that's less than what is owed on the property, and the lender releases the lien so the property can be sold with a clean title (but the lender might not necessarily forgive the debt). You might wonder why a lender would do this, but the reason is very simple - the lender loses far less money on a 'Short Sale" than they do if the property goes into foreclosure. On the surface a "Short Sale" might seem like a practical and simple solution because a foreclosure is avoided, the buyer gets a good deal on the property, the seller's credit rating does not suffer as much as it would in a foreclosure, and the bank saves thousands of dollars - but it's far from a simple process.
A "Short Sale" is always a very long process (an average of 3-1/2 months after an offer is accepted by the buyer and seller) and sometimes it can be frustrating. According to some reports, less than one-half of "Short Sale" transactions ever close escrow. Some of the obstacles involved in a "Short Sale" are:
The seller must prove financial hardship and get the lender to approve the "Short Sale"
Negotiating with the lender to forgive the debt that is owed after the sale (this should be done by the seller very early in the process)
If there is a second loan on the property the second lien holder needs to forgive the debt or agree to a very nominal payment
The price agreed to by the buyer and seller needs to be within a certain percentage of the market value for the lender to approve the "Short Sale"
There might be a taxable consequences to the seller and there will be a negative impact to the seller's credit rating
These are just a few of the difficulties in completing a "Short Sale" and why, if you are thinking of buying or selling a "Short Sale" property, it is important for you to use a REALTOR with advanced training in the "Short Sale" process. If you are a property owner considering a "Short Sale" or a buyer thinking of purchasing a "Short Sale" find a REALTOR who has earned designations that train them specifically for "Short Sales". As a Certified Short Sales Negotiator I have had special training in "Short Sales" and can negotiate on your behalf with your lenders (if you are the seller), the other agent, and all the other parties involved. I can help your odds in getting the escrow closed and help make the entire process go as smoothly as possible for you.
Even though it's a long, difficult and complicated process we will see the number of "Short Sales" increasing in the future. The number of foreclosed homes is clogging the pipeline and loan modification programs are failing to make a dent in the foreclosure numbers. "Short Sales" represent a way for to reduce the number of foreclosures and help meet the demand for discounted properties.
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