What Is a Short Sale - Positives and Negatives
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:
1.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.
2.Absence of a uniform process and application
Currently, both short-sales documents and processes are lender-specific, making it very difficult and time-consuming for REALTORS® to become knowledgeable and efficient in facilitating these transactions.
3.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?
On May 14, 2009, the Obama Administration announced its upcoming Foreclosure Alternatives Program. Among other things, the new program:
•• Establishes financial incentives for servicers, sellers, and second lien holders to encourage the completion of short-sale transactions.
•• Requires that a timeline, of no fewer than 90 days, be set to allow a homeowner to sell a home, without threat of foreclosure action.
•• Requires the short sale agreement to specify reasonable and customary real estate commissions and costs to be deducted from the sales prices. (The servicer must agree not to negotiate a lower commission after receiving an offer.)
•• Will provide standardized documents, including short-sale agreements and offer acceptance letters.
source: Realtor.org
Short Sale Positives:
The greatest positive to purchasing a short sale home is that you can usually get an exceptional value.
The greatest positive to selling a home via short sale is that you may be able to negotiate with your lender to avoid foreclosure and cause less damage to your credit than a foreclosure.
Short Sale Negatives:
The greatest negative to buying a short sale property is that the seller has not typically been given any indication by the bank as to what amount they would settle for and it often takes 4 to 12 months for an answer if the bank will accept or reject the offer amount.
The greatest negative to selling via short sale is that it will still damage the owner’s credit and even with lots of work, he will not be able to get another mortgage loan for several years.
There are exceptions to every ‘rule of thumb’ and lots more positives and negatives. If you have specific questions about short sales, contact Tim Diers 239-825-1166 or Bob Norwood 230-273-4769. If we don’t know, we will find out for you!
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:
1.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.
2.Absence of a uniform process and application
Currently, both short-sales documents and processes are lender-specific, making it very difficult and time-consuming for REALTORS® to become knowledgeable and efficient in facilitating these transactions.
3.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?
On May 14, 2009, the Obama Administration announced its upcoming Foreclosure Alternatives Program. Among other things, the new program:
•• Establishes financial incentives for servicers, sellers, and second lien holders to encourage the completion of short-sale transactions.
•• Requires that a timeline, of no fewer than 90 days, be set to allow a homeowner to sell a home, without threat of foreclosure action.
•• Requires the short sale agreement to specify reasonable and customary real estate commissions and costs to be deducted from the sales prices. (The servicer must agree not to negotiate a lower commission after receiving an offer.)
•• Will provide standardized documents, including short-sale agreements and offer acceptance letters.
source: Realtor.org
Short Sale Positives:
The greatest positive to purchasing a short sale home is that you can usually get an exceptional value.
The greatest positive to selling a home via short sale is that you may be able to negotiate with your lender to avoid foreclosure and cause less damage to your credit than a foreclosure.
Short Sale Negatives:
The greatest negative to buying a short sale property is that the seller has not typically been given any indication by the bank as to what amount they would settle for and it often takes 4 to 12 months for an answer if the bank will accept or reject the offer amount.
The greatest negative to selling via short sale is that it will still damage the owner’s credit and even with lots of work, he will not be able to get another mortgage loan for several years.
There are exceptions to every ‘rule of thumb’ and lots more positives and negatives. If you have specific questions about short sales, contact Tim Diers 239-825-1166 or Bob Norwood 230-273-4769. If we don’t know, we will find out for you!
posted by Bob Norwood at
7:31 AM
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