In today’s real estate market, many home owners owe more than they can net by selling their home. Home prices in Cache Valley have declined over the last few years, and dropped substantially in some price ranges. Selling “Short” or a as a Short Sale, is one way where sellers can sell a property when they are upside down. With a “Short Sale,” the bank accepts less than what is actually owed on the property.
Short Sales are not a magical fix to get out of a regretful real estate purchase. Banks are willing to allow short sales if and when it is a better scenario for them than allowing a foreclosure. Banks will usually not approve a short sale unless the seller has had a legitimate hardship, and lacks means of paying back the mortgage loan.
Although short sales can occasionally be bargains, banks aren’t likely to approve a short sale unless it is close to market value.
Banks will usually only allow sellers to qualify if they have had a legitimate hardship such as job loss, death, or divorce, that substantially alters ability to pay. They also tend to favor owner occupied properties, and are generally easier when the seller pays for Mortgage Insurance.
Second and Third Mortgages must agree to settle for a fraction of what is owed before the primary mortgage is willing to negotiate. These secondary liens will often request that the deficient amount still be paid back as a “personal” loan rather than a lien tied to the property. In essence, these loans are still your responsibility, they just won’t need to be paid back before the house can sell.
Each bank has their own set of guidelines and requirements for short sale approval, but in general, the following are required for short sale approval:
Although short sales are less damaging on credit than foreclosures, they definitely don’t help. The amount shorted is considered “taxable income”, and may result in a higher tax liability. Ask a qualified financial person for real details.
Getting short sales approved can also be a very long and frustrating process.
The biggest obstacle I have faced when dealing with short sales is that they can be very time consuming. The loss mitigation departments at most banks is overwhelmed with short sale requests. Sometimes it takes months just for them to get to the file. The most frustrating thing is that banks won’t review the file until there is an accepted offer. If a property is priced low enough to get an immediate offer, it often won’t be accepted.