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Short Sales Becoming Increasingly Familiar
So-called short sales are becoming more prevalent across the country as the "housing slump" deepens. Itís becoming an attractive option for over-borrowed homeowners who either bought at the height of the housing boom or who sucked all the equity out of their homes in the past year or two and now are left owing more than they can get for their home.
Short sellers walk away without the devastating effects of losing their homes to foreclosure which severly damages their credit reports. But they do have to count any amount forgiven by a lender as taxable income.
Lenders also benefit because they save thousands of dollars in carrying costs, legas fees, and other expenses by clearing the properties off their books.
Itís becoming a great tool as it can provide a way out for both the homeowner and the lender. The current conditions in the housing market will make short sales increasingly popular in the months ahead.
During the frenzy to buy residential real estate from 2000 to 2005, homeowners who fell behind on monthly payments when their adjustable-rate mortgages rose or refinanced or sold pocketed thousands of dollars in the process as home values soared.
Neither of those options is as easy today. Not only have banks tightened their lending standards, but the sheer over-supply of properties for sale and the decline in prices are preventing many recent buyers or those who have recently re-financed from selling quickly, making a profit or breaking even. Folks just don't have the instant equity they had before.
A short sale isnít available to anyone who may be frustrated in trying to sell their home. Only homeowners who are behind on their mortgage payments and facing lenders taking their homes are eligible.
They must submit to a lender W-2 forms, bank statements, two years of tax returns and other documents, including a hardship letter that explains why they canít pay the full amount of their loans.
Real estate agents can negotiate on behalf of their clients and find out whether the lenders will accept short sales. But some banks wonít even consider until a signed contract is presented from a potential buyer.
In that case, the contract is usually contingent on the lender approving the deal. Lenders will seek an appraisal or a broker's price opinion to determine the propertyís worth before deciding whether to approve a short sale.
Short sale contract offers will be denied if there is a large discrepancy in the propertyís value and the offer. It could also be rejected if the homeowner has enough assets to cover the mortgage. However, banks don't really want to foreclose on people so offers, any offers, in the ballpark are being approved we're finding.
Lenders are more likely to accept short sale contracts where the buyers can either pay all cash, have large down payments, can close quickly, or are otherwise in a strong financial position as long as it still makes financial sense.
The law requires lenders to show late payments on the short sellerís credit report. Lenders may also note the short sale or indicate the loan was ďpaid in full with assistance.Ē
However, in both cases this is much better than a foreclosure.
The last short-sale I completed, closed in July. I represented the buyers and we offered $175,000 for a home listed at $199K. The seller owed $184,000. The bank approved this, took the $175K, wrote off the $9,000. The sellers were relieved of any further obligation, the bank recouped as much as they could without having to go to great lenghts to try to get more and the buyers got a heck of a deal.
So it can be a win-win-win situation in the end.