What is a Short Sale?
Well, you’ve asked the right person! I have my CDPE designation (Certified Distressed Property Expert), which means we attended rigorous and extended courses on what is and is not a short sale. We have always had “short sales” but we used deal with them in bankruptcies and deficient judgments. When we began having more and more defaults it became necessary to create a system to deal with the numbers.
In 2007-2009 lenders and their investors were not prepared (or reluctant to recognize) for the volume of defaults. The banks also believed that could make more on a home by foreclosing rather than discounting their note. Over time it has been shown to the bank that on average, they net $35,000-$40,000 more per home through the short sale.
In the beginning, it was a very complicated, uncoordinated and timely process. It was not unheard of that it could take more than 9 months to a year to get a home to close. Over the last 6 months to a year the short sale system for most lenders has been streamlined and the staffing has changed from a foreclosure dept to focus on short sales.
My longest short sale transaction in 2009 was 7 months. I have just had two of my short sales (2010) approved that were entered into in May. One has closed in less than 90 days! Now that said, part of my qualification as a CDPE is to “interview” the listing agent with regard to their expertise and the true hardship of the seller. Many short sales will never close because the agent does not know how to prepare the package to be sent to the Investor (bank) or the Seller is not in a true hardship and just a victim of the market but has other assets. The bank will never approve that short sale and you can waste a lot of time waiting only to be denied.
The other issue on most short sales is that there is often two or more additional loans taken out and secured by the property. These investors are often asked to take $3,000 on a $50,000 note. As you can guess they are not quick to cooperate. Each property and each short sale needs to be understood, interviewed and have a very patient buyer through a frustrating process.
Now, aren’t you glad you asked! Sorry for the long answer. Please read below.
Bill Cole
below is the technical definition directly from our CDPE website.
What is a Short Sale?
A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.
But to be technical, here’s a more official definition:
- A homeowner is ‘short’ when the amount owed on his/her property is higher than current market value.
- A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then ‘sold short’ of the total value of the mortgage.
For homeowners to qualify for a short sale, they must fall into all of the following circumstances:
- Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. Together, you can identify all possible options and, when possible, a CDPE can assist you in the quick execution of a short sale transaction.
IMPORTANT NOTICE Bill Cole, Associate Broker is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. “If you stop paying your mortgage, you could lose your home and damage your credit rating”. Please consult your legal counsel and tax accountant. We have free initial counseling referrals if needed.