Short sales are not something that you hear about that much these days compared to 2010-2013 when it seemed like everyone’s home was underwater. That’s the term used to describe a mortgage balance that is higher than the homes value.
Despite the massive improvements in the economy and home values in recent years, there are still 6.2% of homes nationally (about 3.2 million homes) that have negative equity. Locally in MN, 4.4% of homes have negative equity. This is according to the Core Logic 2016 Q4 Negative Equity Report. http://www.corelogic.com/research/negative-equity/...
The value of your home doesn’t matter so much if you are happy to stay there and you can afford the payments. But when there is a big life change or hardship and you need to sell now, then your home value is very important. Some people that can't make their payments anymore might just walk away from the property and let the bank foreclose. However, this can have terrible results on one’s credit score, their future housing needs and even employment status. A much better alternative is to do a short sale.
A short sale is where you sell your home at market value and your bank gets shorted on what they are due. According to the Minneapolis Area Association Realtors’ February 2017 statistics, 1.8% of closed transactions were short sales.http://maar.stats.10kresearch.com/docs/fss/x/repor...
In order for a short sale to take place it must be listed on the MLS. This enables the seller to proove to their lender that they attempted to get the best price that they could. The offer that is selected is submitted to the seller's lender along with the seller's financial documentation. This documentation is simliar to what they would have submitted to apply for a loan in the first place. But in this case it shows that they can no longer afford payments and they do not have cash available to pay the difference between the sale price and the total debt. Typically the seller will also need to show that they have had a hardship. This might be the loss of a job, pay cut, divorce, or death in the family.
After receiving all of this information, the lender will order their own appraisal of the propety to confirm that the sale price is at market value. They will also meticulously review the financial documents of the seller. Their review process typically takes 2-3 months. Because of this timeframe, the buyer of the property needs to be patient and flexible with their move date.
Because of the various legal ramifications involved with a short sale, I usually partner with a law firm that can represent the seller’s legal interests. As a real estate agent I am not allowed to provide legal advice. The attorney can review the seller’s specific situation and make sure that the short sale is the right solution for them. This partnership works both ways as the attorney isn’t in the business of selling homes. So I focus on marketing and negotiating with potential buyers and they focus on the legal aspects and negotiating with the lender.
Short sales are a complicated transaction but they can be a great option for a homeowner who would like to avoid foreclosure. If you think you might be a candidate for a short sale the first step you should take is to set up an appointment with myself where I can provide you with a no-obligation market analysis of your home. After understanding your home’s current value, if it is clear that the sale won’t be enough to cover the debt, then we can set up the consultation with the attorney.
Thanks to Wendy Haisley, Short Sale Manager at Markve & Zweifel for discussing this topic with me in preparation for this post. To learn more about this topic, please check out www.mzlaw.us
