What Is a Short Sale? Gettysburg PA Short Sale

On November 24, 2010, in Short Sales, by David Monsour

It’s been in the news so much that I started to assume everyone understood the concept of a short sale. Yesterday a relatively high profile insurance professional asked me what it meant. He said “I’ve heard that term thrown around a lot and I really don’t quite understand what it is.”

So lets talk about it, why it comes about, and how they are handled. *I might even touch on why I hate them*

The basics: A short sale is when a person wants to sell their house but the money owed to the mortgage company is more than the home is worth (negative equity). In order to sell their home it is required that the sellers get permission from the bank to sell for less than is owed. Seems simple enough eh? It’s not. Hang with me for a few more paragraphs.

Why it comes about: People are familar with the real estate bubble or atleast the concept that the “bubble” has burst. Prices due to supply and demand skyrocketed during the early 2000’s into mid 2006 (well known peak of prices). As the demand started shrinking and some of the questionable loan products available in the early to mid 2000’s started to reset an expire people were unable to refinance and started losing homes for one reason or another. The weakening enonomy coupled with increasing unemployment caused home values to drop. Many of the loans given during the bubble were 0% down loans. These loans were originated on the idea that prices would continue to trend upward thus generating equity in the homes. Well unfortunately this didn’t happen. So people were stuck with houses based on peak values unable to refinance them becuase the value wasn’t there. The only thing they could do was sell the home. Not so fast. You owe how much? I’m sorry but your house isn’t worth that much. It was pretty common to hear “lets list it and see what happens.” Many realtors did this because they were used to how the market used to be. Properties languished on the market. Years passed while many of these properties failed to sell. Prices continued to fall and we were left with one option – a short sale.

How Is a Short Sale Handled: Typically a short sale is handled by a real estate professional. CDPE is a designation held by some realtors that have been trailed to deal with distressed properties whether it be a short sale or a foreclosure. Others, like myself, have simply learned how to deal with this situations from past experience. The first step in the process is to prove to the bank that you, the seller, are in some way distressed. Usually it requires that you stop paying your mortgage. A few months deliquent is oftentimes required before the bank will consider a person as a short sale candidate. The bank will collect tax returns, pay stubs, and make the assessment on your level of distress. However nothing really takes place until there is a contract in place. At this time the bank evaluates the value of the property, the distress of the seller, evaluates a broker price opinion, submits the information to the investor, and from there a decision is made about the approval of the short sale. This process can take 4-6-8 months or longer depending on the bank and the parties involved.

Short sales have become appealing to some buyers because the risk and time spendt (potentially wasted) is worth the reward. Short sales are often priced lower than other active properties because the quicker the home can sell the quicker the seller can get out of their distressed situation. Short sales are also a way of preserving a persons credit score. Foreclosures can be very damaging to credit so the ability to complete a short sale prior to being foreclosed is advantageous to the seller. It will still marr a persons credit, but not to the same degree as a foreclosure.

Entering into a short sale agreement can be difficult and time consuming for the buyer and seller. There are no definate time frames and not guarantee of sucess so it’s a risky situation. I’ve come to find in my experience that it can be very emotional for the parties involved. At this point I have a hard time suggesting that a first time buyer enter into a short sale contract because of the unknowns associated with this type of deal.

If you have further questions feel free to contact me.

 

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