The Skinny on Short Sales

As markets everywhere begin to pick up there is one thing that continues to stay stagnant.  That is, the short sale process.  As a rule, sales involving foreclosures and short sales take longer than usual to close because of their inherent complexity.

Despite their complexity, short sales still represent a significant portion of sales activity.  These types of transactions made up 45 percent to 50 percent of all sales, sometimes more in parts of the country where the foreclosure rates were particularly high, according to the National Association of Realtors.

What is a short sale?

Simply stated, a short sale is selling a home for less than the amount the current owner owes the mortgage company.  Typically, owners going through the short sale process have incurred some hardship such as a job loss, unexpected relocation, a medical issue, death, divorce or some other unforeseen life event.

A home that is a short sale property is different from buying a property that is actually owned by the bank, known as an REO, or real-estate owned property.  A property that is owned by the bank has gone through the foreclosure process and the bank has taken title of the property.  During a short sale, the owner keeps title until the property has been sold.

A short sale can be a good deal for a buyer, and it can help the seller avoid having a full foreclosure on his or her credit record. Although a short sale and a foreclosure negatively affect a seller’s credit score, in a short sale the damage can be minimized if the homeowner can persuade the lender to report the debt to credit bureaus as “paid in full.”

In a short sale, the proceeds from the transaction are less than the amount the seller needs to pay the mortgage debt and the costs of selling. For this deal to close, everyone who is owed money must agree to take less — or possibly no money at all. That makes short sales complex transactions that move slowly and often fall through.

A recently announced extension of the government’s housing rescue plan could make it easier to buy short-sale properties.  The new version of the Making Home Affordable plan will pay lenders up to $1,000 if they allow a short sale of a property when the owners don’t qualify for loan modification because they owe too much money on the home. The program will spell out a short-sale process and provide standard documents, the U.S. Treasury says.  This a great thing for both buyers and sellers.

The government’s plan probably still won’t help if there are multiple liens on the property, but it should encourage lenders holding the first mortgage to move the process along.

Whether you are buying or selling, the short sale process does not have to be impossible.  With the right attitude and a little know how this process can be conquered.

Please contact your local lender for specific information about applying for a short sale.  If you are interested in buying a short sale property, contact your local Realtor.

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