Jan
04

Short Sale Facts – Do You Know If You Qualify For a Short Sale

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Short Sale Right For You?

This Article has one main goal, and that is to help you understand how a bank determines if you qualify for a short sale, or not. There is no doubt that you have heard of a short sale by now, even if you do not understand what they really are. Basically a Short Sale is when a home owner owes more on their property than it is worth, and the bank agrees to allow the sale of that property for the current market value of the property, regardless of what the current property owner owes on the home. Short Sale Information and Negative Equity – For example, let’s say a homeowner owns a home that appraised at $540,000.00 when he bought it three years ago. However, three years later, it’s appraising at $230,000.00. The homeowner currently owes a first mortgage of $432,000.00 and a second mortgage of $108,000.00, bringing his balance to a total of $540,000.00. That means he is upside in the house by $310,000.00. Or as it is often called, “Negative equity.” The bottom line is; the homeowner owes more on the home than it is worth. How Can That Happen? – There are many ways this could happen, and lets take a look at one common scenario; let’s say the home owner bought the property when credit was real easy to get, and basically if you had a heartbeat, you could get 100% financing. If you recall, five years ago, a lot of home buyers were recipients of over inflated appraisals. They could have been buying a house that was only worth $400,000.00, but they’d get an appraisal at $540,000.00. Regrettably, many people bought homes like that: over inflated appraisals and easy credit. Those poeple buying a home then never considered what would happen if the market bottomed out, or if we hit an economic recession. When things started going south, these negative equity homeowners were some of the first to feel the crunch! Because they are upside down with the equity, they aren’t going to find any buyers on the open market. Let’s face it; in this market, no smart home buyer is paying the price of what a property was worth a couple of years ago. So the expectation that they would pay more than the property is worth borders on insanity. Don’t Let This Short Sale Information Shock You! – In these instances, this type of sale is probably the best route for all parties involved. In a short sale, the bank or lender agrees to accept an amount less than the actual loan balance, “As payment in full!” In our above example with the $310k in negative equity, they may accept a amount of $310,000.00, if that’s what the market is bearing. I can hear people screaming, “No way a bank accept an offer like that!” They will and they are IN THIS CURRENT MARKET! That’s why this short sale information is so vital. Short Sale Information and The Cost of a Foreclosure – What most people don’t factor in is the cost of a foreclosure. On average, a foreclosure will cost a bank around $50k to $60k per property. That figure includes but is not limited to the legal fees, court fees, appraisals, clean up fees, repairs and maintenance, insurance and taxes and upkeep until the property is no longer on the books at the Bank Owned REO Department. Based On This Short Sale Information Will The Bank Foreclose? -Let’s look at the facts and the numbers; if the bank forecloses, fixes the property up and puts it on the market for $540,000.00, serious home-buyers are going to chuckle and keeping driving by and investors are going to Roll On The Floor Laughing!\ Especially if they are in the neighborhood and see “For Sale” signs like these (For Rent, FSBO, Lease With Option, Rent to Own, No Credit Check, Bank Owned, Make An Offer, Bank REO, etc.) all over the place. With that type of competition the bank could be forced to maintain that property for years and that’s not going to happen! Short Sale Information and Loss Mitigation – When the situation looks bleak, the issue is usually sent to the Loss Mitigation Department to figure out which option IS GOING TO COST THEM THE LESS DAMAGE! They have accepted the fact that they are going to lose money on the deal, so their only question is, “Will we lose less on a foreclosure or on a short sale?” Typically, a short sale is quicker and less expensive than a foreclosure. Some banks will require that you prove you can no longer afford to make the payments, but once you jump through those hoops, you should have no problem making the deal happen. One last caveat; if you are upside down in your home, it’s best to TAKE ACTION NOW!

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