What is Short Sales?
Whenever a home is worth considerably less than what is owed on it, the property could be very difficult to sell. In many instances, mortgage lenders will approve what is known as a "short sale" rather than taking the risk of a homeowner defaulting on their loan. A short sale means that the real property is sold at a discounted rate, and the amount received is used, under these specific terms, to satisfy the loan.
Many people elect to undergo a short sale because they are in danger of foreclosure. Last year, approximately 46,000 New York residents took advantage of the opportunity to complete a short sale according to data from the Department of Housing and Urban Development. If it seems as though a homeowner is likely to default, a mortgage company may approve a short sale rather than attempt to take back the property. This is because the costs involved with foreclosing on a home can be prohibitive, and lenders would rather receive a sizeable chunk of the balance owed rather than racking up these extra fees. Currently, 13.5% of the homes on the market on Long Island are short sales.
Since all liens against property must be cleared before a home can be sold, many people find themselves unable to pay off their mortgage after selling property that has declined in value. For this reason, those who need to sell their home quickly yet owe more than it is currently worth can benefit from a short sale.
Before a short sale is authorized, buyers must typically complete a hardship packet detailing the reasons why they should be approved to short sell their home. This packet will contain information about their earnings, an illness, or the details of their hardship; a plea to the bank which states their case and position. If approving a short sale is in the best interest of the lender, the request is likely to be approved.
For an example of a hardship package see:
- JPMorgan Chase Bank, N.A
- CitiMortgage or CitiFinancial
- Indymac Mortage Services (OneWest Bank)
- Wells Fargo Home Mortgage
- Citigroup Inc.
- GMAC Mortgage LLC
When there are multiple liens against a piece of property, getting a short sale approved can be more difficult. This is because each lienholder must agree to the terms of a short sale. Second, the subsequent mortgage holder often holds out on approving the short sale of real estate because they stand to lose the most money as the first mortgage must be satisfied first and is given priority; if the proceeds do not completely cover that loan, subsequent lenders could get nothing.
Once a short sale has been approved, the property in question must be placed for sale with a licensed realtor. This is done in an effort to prevent fraud from taking place. It is more beneficial for all parties concerned since properties that are listed with a realtor tend to sell faster than homes placed up for sale by the owner. There have been numerous scam artists that claim to help Long Island homeowners avoid foreclosure; however, many of them are not authorized to do so. Only your lender can approve a short sale.
The terms of a short sale agreement will spell out the minimum amount of money a lender is willing to accept for the payoff. The listing agent will be provided with this information which helps the real estate agent better answer any questions about the property while also making sure any offers that are made will at least meet the minimum requirements.
Who benefits from a short sale and how do they benefit?
There can be a number of benefits that homeowners can recognize when undergoing a short sale. It can free homeowners of burdensome debt, thereby making it easier for them to meet their other monthly obligations. A short sale allows homeowners who might not otherwise be able to sell their homes the opportunity to do so and is often a way to avoid foreclosure, thereby ensuring that families have a roof over their heads even though they are suffering extreme financial hardship.
A short sale can negatively impact an individual’s credit report, as it is in essence a debt not paid in full. Even so, it can be a viable option for those who find themselves in difficult financial situations that could result in what would certainly be worse, foreclosure of their home.
For a buyer, considerable deals can be found by agreeing to purchase a short-sale property. Generally, the price will be slightly below market, or better, which is a price approved by the bank based on the owner's loan and financial situation. It is important to note that Short sales take some time to go through the process of getting approval from the bank, generally a few months to even a year in some ext ream cases, again just for clear bank approval.
There are new guidelines by the Federal Housing Finance Agency, which went into effect on Nov. 1, 2012, which permit a homeowner with a Fannie Mae or Freddie Mac mortgage to sell their home in a short sale even if they are current on their mortgage provided that they have an eligible hardship. The program was also implemented to expedite assistance to borrowers as short sales have become well known to take time.
Once an offer is made, it takes time to get a commitment from the bank to sell the property and close. This is due to the often burdensome stack of short sales just sitting on the desk of lender attorneys waiting to go through. For investors, or buyers who can play out the waiting game, short sales can be an attractive game of real estate. For families looking to close quickly, a short sale can be something to avoid entirely.
Every situation is different when it comes to a short sale. We have professionals on staff that can help decide if a short sale is for you by giving you a comprehensive market analysis to properly determine the current price of your home, the track record of your bank in comparison to other short sales for similar properties in similar situations, etc. Contact us today if you are considering selling short or if you are thinking about purchasing a short sale property in New York , New Jersey & Staten Island.Our professional real estate agents ready to help you buy and sell your property.