New to the lexicon of real estate is a concept of allowing people to go ahead and sell their homes even though the resulting net proceeds from that sale will not be enough to pay off the existing loan. Known as the “short sale”, sellers all over the country are finding this new option that just didn’t exist a couple years ago.
This is how it works: Let’s say someone owes $225,000 on their home bought in 2007, but they live in an area where values have dropped 10% in the months since their purchase. When they bought, the home was worth $235,000, but now the value is $211,500. Prior to the advent of the short sale, the only options available to this owner are: 1) Stick it out until values come back 2) Bring the difference to the closing table if they sold the home (in this case after closing costs and everything, the seller would be bringing approximately $32,000) or 3) Walk away and let the home go into foreclosure. Enter the short sale where this owner, given the proper amount of hardship exists, can sell the home for the current value of $211,500 and the lender will accept whatever that sale will net (about $192,500) and write off the difference (about $32,500).
Why would the lender do this? Because that loss is better than what the loss would be if that home goes into foreclosure. It saves attorney’s and trustee’s fees, it save holding charges of utilities, maintenance fees, taxes, insurance, yard care, and all the charges they would incur if they took that home back and then turned around and ended up selling it for less than market value anyway. Obviously, this is not an option available to anyone who has had a loss of equity and is currently upside down in their home. Current statistics show approximately 60% of the country is in that boat right now. No, this option is for those individuals who are able to convince the lender that, given their current set of circumstances, their home will end up in foreclosure. Whether it be from loss of a job or loss of pay, medical expenses, storm damage, whatever, these individuals can no longer afford their home. There are other options available to homeowners besides the short sale, like loan modification, forebearance, bankruptcy, etc, but those options don’t always work and so the short sale may be a way out for these individuals.
Since the existing mortgage company is going to be handed a check for less than what is owed them, they have to approve these sales ahead of time. That has become the tough part. Just like back in the 1980s when savings and loans were hit with huge numbers of foreclosures and had no idea how to handle them, the mortgage companies of today are being hit with massive amounts of mortgagors who are trying to request these short sales and they have no standard procedure in place to handle the requests. Working quickly to develop some standardized way of working with these lenders, organizations have developed systems to try and smooth out the process.
It currently takes a mortgage company about 30-45 days to review and either approve or reject these short sale packages, so buyers must be patient while the process goes on. Hopefully as more and more of them get done, that time will improve.
The concept of yin yang describes how opposing forces give rise to each other in nature. So seems to be true in real estate. Out of the chaos of this economic turmoil we are going through, comes the opportunity for new things to occur to help calm the turmoil down. Currently there are people out there who have learned how to walk these people through the process and help explain some of the advantages and pitfalls of these short sales. I have just completed a course and received my CDPE (Certified Distressed Property Expert) designation and can help anyone who is in a situation where their current house payment is more than they can handle. Please note that the designation says “distressed property expert”, but it may be more appropriately called “distressed people expert” because the property itself may be fine, but because of things we mentioned before, the homeowner is finding themselves going under, either slowly or quickly.
If you or anyone you know are in a situation where the house payment you are paying is eating you up, please don’t think that letting the home go back to the lender is your only option. It is not. There is help out there and it is a click or phone call away. If you or someone you know needs more information on this, please feel free to contact me. If you qualify for the program, it costs you nothing. If you’re reading this on my website, just use any of the information on it to contact me. If you are reading this somewhere else, you can call email me at donleonard@comcast.net or call me at 281-893-8400 x192 or on the cell at 713-899-3938.
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