Short Sales in a Nutshell
Short sales happen when the lender, or holder of your mortgage, agrees to accept less than the amount you owe on your home. Most lenders are willing to consider a short sale, using a Realtor to contact the loss mitigation department and find out what their short sale policy is can be helpful.
I can not emphasize enough that you must use a realtor who has short sale experience. This is a very detailed process and all steps must be taken in the proper order to achieve sucess.
The short sale process is changing every day, new requirements of the banks and homeowners are changing over time as the market continues to recover. Lenders are seeking the most effective methods to achieve the sale of a home
Your lender will require you to fill out a short sale package stating your hardship reason for a short sale and your financial position.
In some short sales, the price will be approved by the lender before the home is placed on the market.
Once a contract for your home is secured the mortgage holder will decide if the price recieved is in line with the market.
Your realtor must know what phase of a pre-foreclosure you are in and have the knowledge to stall that foreclosure.
They must be able to work with the short sale departments and negotiate on your behalf, often with more than one lender.
This is a viable choice but not an instant process, the time periods are getting better, so be patient.
You might wonder how a short sale affects your credit.
(before beginning a short sale it is wise to seek legal and tax advise and read the Short Sale advisory below)
Typically sellers will take a bigger hit on thier credit report by going thru foreclosure. This is according to Christopher Rockey, Director of Education for Mortgage Resolution Services, he also says the points lost on a FICO score (your credit rating) are as follows: (subject to change, always verify)
Sellers can expect a hit of 250-280 points. So if you score was 680 before the foreclosure it can go as low as 400.
The affect is much less on the sellers credit. You can expect to have a net loss of 80-100 points. These numbers only apply if you are current on all other consumer debt.
Buying another home, the waiting period: (estimates, subject to change)
Foreclosure: 5 years with a fico score of 680 and minimum 10% down.
Deed in Lieu: 4 years with a fico score of 680 with minimum 10% down.
Short sale: 2 years no minimum credit score and no minimum down. In some states the seller can be subject to a deficiency judgment for the difference of the amount owed and the amount paid. The lender can decide if they wish to pursue a deficiency judgment .
For sellers who are weighing the options of a short sale vs. foreclosure, they should seek legal and tax advise.
Now if you decide to do a short sale, after seeking legal and tax advise talk to your realtor about the sale process, especially the long close of escrow period and the possibility that the lender will not accept a buyer's offer if it is under what they have in mind for a short sale.
Begin your search for short sale and foreclosure properties now: