Short sale is a term that has become a household term over the last couple years. I have taken some information from the National Association of Realtors website to share it with those who might be a little fuzzy on what a short sale is all about.
What is a short sale?
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.
Why is the number of short sales rising?
Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.
A short sale can also be the best option for a homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.
What challenges have short sales presented for REALTORS®?
The rapid increase in the number of short sales, and the short sales process itself present a number of challenges for REALTORS®. Major challenges include:
- Limited experience
Many REALTORS® are new to the short sales process; a difficulty which is compounded by many lenders’ lack of sufficient and experienced staff to process short sales. Even if the REALTORS® are experienced, most servicers are under-staffed and still not adequately trained, making negotiating a short sale particularly difficult. - Absence of a uniform process and application
Until HAFA guidelines were established, both short-sales documents and processes were lender-specific, making it very difficult and time-consuming for REALTORS® to become knowledgeable and efficient in facilitating these transactions. Watch this quick video that offers some of the best short sale advice. - Multiple lenders
When more than one lender is involved, the negotiations are much more difficult. Second lien holders often hold up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will get nothing.
As a result of these challenges our members have reported difficulties with: unresponsive lenders; lost documents that require multiple submissions, inaccurate or unrealistic home value assessments, and long processing delays, which cause buyers to walk away.
What is being done to address or eliminate these challenges?
HAFA is designed to address many of the challenges presented by short sales. For more information see NAR’s Home Affordable Foreclosure Alternatives Program
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Short sales for buyers can be very frustrating but can be rewarding if you have the patience.
Aaron,
Wonderful explanation of a difficult subject to explain. We will see more and more of these in the near future sadly.
Our brokerage is prepared to help home owners who more on their home and don’t know what to do.
It’s going to take a lot of change from the big banks process to get short sales to where they need to be. Great article, and anyone that is interested in a short must be patient if they want the benefits of a discount price.
Today, 1 out of every 6 homeowners in America is behind on mortgage payments. These are tough and frustrating times. Now more than ever, it’s important to identify your options. Foreclosure can be avoided, your credit can be saved, and your financial future can be salvaged.
As an agent with the CDPE® Designation,Certified Distressed Property Expert, short sale expert I have a strong and unique appreciation of the factors affecting the market, and know that there are options available to you.
Short sales has a positive and negative effects but as long as it is done in proper procedures this can be the solution for those homeowners who are upside down on mortgages.
Short sales are a great alternative to foreclosure. But you are very right about agents being under-qualified. It is definitely something people need to watch out for.
I agree, shortsales can be very rewarding once completed, but the process is often times a nightmare. Even for me, as I’m trying to scoop up on a good deal (like all buyers), it’s really a patience game.
Short sales are a great alternative to foreclosure. But you are very right about agents being under-qualified. It is definitely something people need to watch out for.
sometime we need to avoid foreclosure using short sale. again people goes to some agents who helps foreclosure. they might be unqualified. we need to be aware of that.
This is a great resource for those thinking about short sales. Many homeowners are not aware of the ins and outs, hopefully this can provide clarity to those looking for information.
I went through one a couple years ago – wamu really hurt me
I was one of the first short sales.
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