SHORT SALE FUNDAMENTALS
What is a short sale?
(Also called “Short Pay” or “Pay Off”) When a lender allows the sale of a home and the net proceeds to the lender at close of escrow are not enough to cover the seller’s mortgage obligations it is consider a ‘short sale’. The lender also agrees to forgive the difference to avoid foreclosure. This includes closing costs such as escrow and title fees, termite, property taxes and real estate commissions. The seller is also not willing or unable to cover some or all of the difference. The seller must be in a financial hardship for the lender to approve the short sale.
What would qualify as a financial hardship?
Unemployment, reduced income, divorce, separation, medical bills, too much debt, death of a spouse or family member, mortgage payment increase, business failure, job relocation, illness, damage to property, military service, incarceration to name a few.
If a lender rejects a short sale, they will wait several months to get the property back through foreclosure, then take several more months to get it sold. During these many months, the lender has received no payments and the market has likely dropped further. A 2002 study by Craig Focardi of the Tower Group estimated that the entire cost of a foreclosure was $58,759 and took 18 months. Other factors that can influence a bank’s decision include the liability risk it assumes by owning the property after foreclosure, the money tied up during the holding period for a foreclosure and REO resale, additional costs associated with an REO such as attorneys’ fees, as well as the additional reserves it will need if REO’s rise in the bank’s portfolio. An REO stands for Real Estate Owned and means the bank owns the property.
What does it cost me (Seller) to do a short sale?
Nothing! Just patience and the inconvenience of showing your home.
From the time a short sale package and a valid offer have been submitted to the lender, it can take as little as two weeks or as long as 60 days to receive an approval of a short sale from a lender. That’s why it’s critical to price and market aggressively to receive that first offer and get the short sale process started as soon as possible. Buyers should be made aware of the time line before placing an offer.
What is the likelihood of getting a short sale done?
Depending on your situation, we are experiencing a 90% chance at the moment.
What is a non-judicial foreclosure?
A non-judicial foreclosure is when a Trustee Sale happens at the courthouse steps.
What is a judicial foreclosure?
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.
Why is it better to do a short sale instead of a foreclosure?
Foreclosure is not a good option since it can adversely affect your credit record for up to 10 years. Typically on a short sale, the loan will show up as “paid” on your credit report; however there can be a notation that says “settled for less than originally owed.“ This is much more favorable than having a foreclosure on your credit report. Better credit means you will be able to purchase a home a lot sooner – usually in 18 months.
How long after receiving a Notice of Default does the Trustee’s Sale happen?
A Trustee’s Sale date is set 3 months after the date the Notice of Default (NOD) is recorded. 20 days prior to the sale date, the owner will receive a Notice of Sale (NOS). In times where there are a lot of these happening, the time periods get longer, sometimes a lot longer.
When should I move out?
While it is easier for us to sell your home when it is vacant, we recommend you take advantage of as much free housing as is legally available to you. You are actually helping your lender by not moving out because a vacant home is subject to vandalism which further increases the lender’s loss. We will let you know when the short sale transaction will close and will give you 4 week’s notice to move out. If you move out too soon, and the home gets foreclosed, you will not be able to take advantage of the money (cash for keys) your lender will offer you to move out quickly.
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