Short Sale Essentials
A Short Sale is a carefully agreed upon sale of a property where a lender is willing to accept less than the amount owed on it because the borrower, due to an acceptable hardship, is unable to make payments. For homeowners, there are only 23 universally “acceptable hardships” that cause “unexpected” financial crisis in their lives.
The lender accepts an offer to purchase from a 3rd party buyer, thus relieving the original owner from encumbrances and potential, future liabilities.
Home lenders are willing to take less for the home than is owed on it and less than it’s worth in today’s declining market. Why? Because lenders will lose more if the property goes into foreclosure, and so will the homeowner.
There are three stages in the foreclosure process. They are pre-foreclosure, foreclosure and post– foreclosure. The pre-foreclosure stage is the only one where everyone comes out a winner. In the foreclosure stage, the homeowner’s FICO credit score can be reduced by 250-280 points and it will take 3-5 years before a lender will offer a sensible interest rate to make it possible to buy another home.
In the “pre-foreclosure redemption status” stage, with the help of a Realtor® , trained to negotiate a “short sale” with the lender, the FICO credit score will only take an 80-100 point “hit”, and the homeowner will be able to buy another home with a good rate in 18 months to 2 years or less.
Other advantages of the “short sale” option in the pre-foreclosure stage include the possibility of leasing back the home from a third party investor/buyer, no deficiency judgement, no repair costs, no money to closing, stopping nagging collectors, avoid bankruptcy, a smoother transition to get out from under and get on with life.
As a trained Realtor® you will be able to explain the other pre-foreclosure options you have to assist you a distressed Seller in making a decision that’s in their best interest. With over 1 million properties expected to be in foreclosure this year, the difference in losses to be sustained by lenders between a negotiated short sale and a fully executed foreclosure is estimated to be in excess of $50 Billion.
The costs to the Lender for commissions, closing costs, basic repairs, property maintenance, insurance, taxes, homeowner association dues, eviction and court costs, attorney fees, and much more averages about $400 a day for an average priced home. Over the 11+ months that the Lender has to carry the property and their hard costs can add up to over $130,000.
When you subtract these costs from the reduced sale’s price dictated by the depressed market and then take that sum away from the over-extended loan balance, the lender’s loss is substantially greater than a quick short sale. Time certainly is money!
It should come as no surprise to Sellers that they’re behind in their payments or can’t afford to continue making payments on their home because of a recent rate adjustment or for whatever other reason that has put their life in crisis. Sellers should not ignore the notice or telephone call that reminds them of their obligation. They should call their lender immediately so they won’t accelerate the process of foreclosure.
Remember, the lender does not want the property. Realtors® play the most important role in helping distressed Sellers reorganize their obligation to make their home more affordable, or get them out from under. by creating a WIN-WIN-WIN situation