What exactly is a Short Sale?

Simply put, it is when you sell a home for less than what is owed on it with the lender’s approval and the lender forgives you for the difference (what is short) between what is owed and for what it ultimately sells.  The Federal Government is now pushing for this option for homeowners who are unable to obtain loan modification and offering lenders financial incentives to permit homeowners to choose this route.

Why would the lender agree to do this?

Money.  It’s always about the money isn’t it?   Typically, it is cheaper for the lenders if the house is sold prior to getting into foreclosure and being sold at auction.  There are costly expenses associated with foreclosing on a home (aside from the fact that owners who are going through foreclosure typically destroy the homes before they are evicted); but with short sales, it takes less time (meaning less carrying cost for the lender) and makes more economic sense for lenders if the homeowners have an interest in and participate with the lenders in selling their homes, rather than fighting with them.  The lender saves money because they don’t have to pay for eviction, go through an auction only to have to take the property back because the auction did not meet their floor price or no one attempted to bid, make repairs and then pay Realtors to sell it as a bank owned (REO) property which typically gets deeply discounted by buyers anyway, in the meanwhile, still paying for taxes, insurance, association fees, etc… that the seller failed to pay.  A home where the seller still resides and maintains will fetch a much higher selling price than an abandoned eye-sore type of property.

Why would it be good for the seller?

It allows them to have control over their economic future and sense of dignity.  Let’s face it, if you are contemplating foreclosure, that means your financial situation will not be changing for the better in the immediate future.  Don’t let others dictate your financial future; get involved and control and participate in your own financial outcome.

The most important facet to the short sales process is that it permits you to have control over your financial future.  If you are forced into a foreclosure situation, your credit score will be devastated as you had no participation with the lender to help address the situation.  The net result will be more devastating than bankruptcy from the Fannie Mae Underwriting Guideline point of view and you will not be able to buy a home or apply for a credit card for many years; additionally, now more and more employers are doing credit checks on prospective new hires and a foreclosure on your credit history may put you in jeopardy, especially if the job requires security clearance status, is a government position or involves handling of money. And once you are forced out of your home, you will need to rent a property; with a foreclosure on your credit record, you will learn that finding a rental property will become more difficult and the down payment requirement will dramatically increase compared to people who don’t have foreclosure on their record.  If you choose to take control and complete a lender approved short sale, you will be able to salvage your credit by more than halving the seasoning requirments (only 2 years) for Fannie Mae Underwriting Guidelines for re-establishing credit and give yourself the opportunity to be in a situation to buy a home again in a relatively short time.  Naturally, individual sitautions will vary in results.

A mis-perception floating around out there is that the short sale Realtor works for the lender.  That is absolutely wrong.  The listing agreement is a contractual relationship between the seller and the Realtor; the lender is not a party to the contract and has no relationship with the Realtor.  WE WORK FOR YOU and have a contractually obligated,  fiduciary relationship with you!  We look out for your interests.

Who pays for the commission?

Because you are facing financial difficulties, the lender is required to pay for the commission and associated closing costs for completing the short sale.  (This is why some people believe the Short Sale Realtor works for the lender).