Short Sales

Short sales are rapidly becoming a popular choice for many distressed home owners, and chances are you've heard the term thrown around lately. So, what is a "short sale" all about? According to the California Association of Realtors, a "short sale is a sales transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan." It is a negotiated pay off. That being said, you are probably wondering why banks would willfully accept a loss on the sale of your home. The simple answer is money. Often times it is more economical to perform a short sale than to go through the costly process of foreclosure. According to Clayton Holdings, Inc. "short sales result in average loan losses of about 19% compared with an average loss of 40% for homes sold after foreclosure."

A short sale may save the bank money, but what about the seller? What is the advantage for them? It is said that a short sale does not affect your credit score as badly as foreclosure. It is the difference between getting hit by a train or a bus. Both are bad, but one will leave friends and family picking up the pieces for seven long years. Short sales are also viewed as a way to save owners from foreclosure. As you probably know, the foreclosure process can be embarrassing and emotional.

Short sales do have their downfalls however, and many Realtors run away from a short sale opportunity. The truth is many agents feel they do not have the training or experience to handle a short sale. This Realtor included, but not by choice. The paperwork is enormous for both the seller and the listing agent. The process is lengthy, complicated, and absorbs more time than normal for a listing. To make matters worse, different lenders have different processes for handling short sales.

Are you a candidate for a short sale? Be prepared to be asked difficult questions about your finances, and be prepared to fill out a healthy stack of paperwork. You'll be asked to sign forms, make copies of mortgage statements, tax returns, bank statements, paystubs, profit and loss statements, letter of hardship with supporting documentation, and so on.  Just remember, all this work may save you from foreclosure.

On a final note, I'd like to thank Devon Title for much of this information, and the short sale seminar they hosted.  I do not claim to be a short sale expert.  This was just a basic introduction.


Jared Hammond

Jared Hammond

Real Estate Associate
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