In the last couple of months there has been alot of people beginning to hear the buzz word "Short Sale" and when I asked around most agents don't really understand it. Please, don't feel bad, it hasn't been widely publicized up until lately. I spoke to a couple of mortgage bankers and local bank agents and I was told the term is sometimes perplexing. Some homeowners think they have to sell their home for less than what they owe and must bring money to the closing to make up the difference. Well, that's not it...not really!
Here's an example, in Maryland's real estate market today. Four years ago Mr. & Mrs. Johnson bought a home in 2004 for $350,000. They financed 100%. Two years later they had some bills they wanted to pay off and do some home remodeling so they had the home appraised and it came in at whopping $445,000. So guess what? They received the line of credit from the bank and rolled in some of their credit card debt and made some improvements around the house. Today, they now owe $395,000. Now, Mr. Johnson has to sell - he has a great job offer and decides to accept it.
Now, they need to sell their home quick. My phone rings, "Camille, I'm moving to Arizona... come list my house? I need to get $450,000 to cover Realtor fees, some closing costs and pay off my 1st and 2nd mortgage. I know the market is tough, but I just want to break even." So I meet them at their home and this is where I get a knot in my stomach- I hate delivering bad news, while one of their toddlers is smiling so dang cute at me. I adjust myself and look them straight in the eye, and show them a very REAL market analysis and watch them shake their heads in disbelief. It's disheartening to say the least for everyone involved including myself.
Nonetheless, the sellers still want me to list the house for 450,000. (At this point I thought I should just walk---but I didn't-I thought maybe I could pull a rabbit out of a hat and help them). So, in the months to follow- there is no showings, and Mr. Johnson moves away and Mrs. Johnson stays with the kids. Finally, after 4 four months the price is lowered $435,900. Still no showings. The recent CMA shows homes are selling for $360,000 in this neighborhood. We lower the price again at $420,900.
It has now been a year,and the sellers have been making two house payments. (Mr. Johnson bought a home in Arizona) The bottom line is that they can't go any lower in price. They are horrified at the idea of foreclosure. I advise them not to give up and if they choose foreclosure it will affect more than just the home. Many people faced with foreclosure end up losing their jobs and families as well. Nowadays, it is not unusual for people to tell you of creditors who are calling and hunting them down for missed payments. So many times homeowners get so burned out trying to hold on and make ends meet. Many times out of despair, homeowners are overwhelmed and will cave in and say, “I don’t care if they take my home, I’m sick of the collection calls!”
So here is where the "Short Sale" comes into play. If you start to miss your house payment, you need to ask the bank to do a short sale. What will happen is you will find a buyer at a price reflective of the current market in your area. The lending institution or bank will either approve or deny it. If they approve the short sale, it means they are willing to dismiss the difference between what you are selling it for and what you currently owe. Does it mean you're totally of the hook? No, the difference will have to be reported on your taxes (seek tax advice) and your credit will get pinged. But, in reality at least your credit will not be major compared to foreclosure or bankruptcy.
Does this always work? No, it doesn't ... but sometimes it does. And, when it does it's like a ton of bricks have fallen off your shoulders. As always, please consult a licensed Realtor, tax adviser and attorney and get them all working together if you decide to go this route. There are always solutions to any problem, just advise your clients to not do "nothing". Please feel free to post your comments or any updates to the process.
