Tuesday, August 3, 2010

Short Sales...Is it the way to go?

Most states in the U.S. have been utilizing the short sale process. A brief explanation would be as follows: Mr. and Mrs. Upsidedown Homeowner (they owe more on the home than it is worth) are put in a position that they must sell their home. The MUST part of that is important because if the bank that holds the mortgage on their home is to agree to the short sale, the homeowners must have some sort of a hardship. The typical hardships that would qualify would be:
1. Divorce
2. Loss of employment
3. Reduction of income or increase in expenses
4. A health issue that creates loss of income or increased expenses
5. Job transfer forcing a move

Wanting to sell your primary or investment property just because you are upside down and it's having an adverse affect on your portfolio, is not a good enough reason. You must be able to prove that you have at least one applicable hardship. The most common one today is loss of or a decline in income. Most of us have suffered a decrease in pay, reduced work hours or reduction in benefits resulting in increased expenses.
The average short sale is completed in approximately 90 days now. Most banks have replenished their staff and assembled a platform for managing the short sale process so they are closing much faster now.
As a homeowner, you should consider the short sale the same type of sale as a normal sale with the exception of the bank having to approve the sale and your credit being downgraded. The home should be maintained the same as you have been, or better since your are selling it, and all of the normal selling rules such as staging the home, keeping the utilities on, and making repairs as necessary DO apply. If any agent or want-to-be agent tells you different, they are wrong. Part of the purpose of the banks accepting the short sales is that they expect the homeowner to stay in the home and maintain it while it is on the market and in escrow. Therefore, the home will sell for more because of the condition, the bank gets more money and they mitigate their loss.
The end result for Mr. and Mrs. Upsidedown Homeowner could be any or all of the following:

1. Best case scenario: No cash contribution, no promissory note to the bank, and the bank agrees not to pursue Mr. and Mrs. Homeowner for a deficiency judgement.
2. Homeowners sign a promissory note to the bank for a fraction of the unpaid debt.
3. Homeowners have to make a cash contribution at close of escrow to the bank.
4. Both 2 and 3.
5. No cash contribution, no promissory note but the bank (or banks) reserve the right to pursue the homeowner for a deficiency judgement for the deficiency.

There are other options of course but this is only a blog. There are obvious credit ramifications. In most cases, Mr. and Mrs. Upsidedown Homeowner will succeed in the short sale and have the underwater home behind them and start rebuilding their credit as soon as it closes. They should be able to finance a home within two years after the short sale closes, as long as the rest of the credit is maintained.
For more detailed information contact:
Dan DeNuccio
Prudential Americana Group Realtors

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