A Short Sale is a carefully agreed upon sale of a property where a lender is willing to accept less than the amount owed on the property because the borrower, due to an acceptable hardship*, is unable to make payments (See the Hardship List).
In a short sale, the homeowner must prove that he/she is no longer able to make the payments. The homeowner does this by submitting financial statements, tax reports, paystubs, bank statements and a letter explaining his/her current financial situation to the lender. With this info, the lender will determine the homeowner’s debt to income ratio. If the ratio is high and the homeowner does have a lot of debt in comparison to his/her income, typically the short sale will advance.
Why would lenders be willing to accept less for the home than what is owed ? Because lenders will lose more money if the property goes into foreclosure, and so will the homeowner. The costs to the Lender for commissions, closing costs, basic repairs, property maintenance, insurance, taxes, homeowner association dues, eviction, court costs, attorney fees in a foreclosure averages about $400 a day for an average priced home.
In a foreclosure , the homeowner’s FICO credit score can be reduced by 250-280 points and it will take 3-5 years before a lender will offer a sensible interest rate to make it possible to buy another home. In a short sale with the lender, the FICO credit score will only take an 80-100 point “hit”, and the typically the homeowner will be able to buy another home with a good rate in 2-3 years or less.
Additional advantages of the “short sale” include:
- No deficiency judgement. Typically the homeowner will not need to pay back the difference between what was paid to the bank and what was owed.
- No repair costs. The typical short sale house conveys “as is”.
- Typically, the homeowner does not bring money to closing.
- Stops nagging collectors. The debt is considered paid in full so no collection is needed.
- Avoids bankruptcy. In a short sale you are working WITH your lender instead of AGAINST your lender as in a bankruptcy.
- Provides a smoother transition. Before you know it, 2 years will have passed and you will be able to purchase a home again. The wait time after foreclosure and bankruptcy is much longer.
- Provides a possibility that you MIGHT be able to rent the house back if an investor purchases the property.
Remember, the lender does not want to possess your property. The best course of action is to have an educated Realtor, like Mary Drefs, help the distressed Seller out from under a big mortgage by coordinating and guiding the owners through the steps of a short sale. Mary Drefs will create a WIN-WIN situation so you can put this mortgage behind you and get on with your life.
Call The Drefs Team at 623-694-0354 to discuss your best solution.