What is a Short Sale?

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What is a Short Sale

What is a Short Sale?

A short sale is the process by which a homeowner can sell a house for less money than he actually owes on the mortgage(s). This is done by the buyer or investor providing proper documentation to the mortgage lenders to convince them to reduce the mortgage balance to allow the sale. The mortgage lender (or bank) actually takes a loss on the mortgage because the value of the home has fallen below the mortgage balance AND the homeowner is in a poor financial condition that will not allow him to continue to pay on time. If the bank approves the discount on the mortgage, the home can be sold for a lower price without the seller having to come up with cash to cover the shortfall, and the mortgage is satisfied and the foreclosure process stops.

Why would a bank or mortgage lender want to do a short sale?

Banks do not want to own real estate, they want to lend money and collect interest. When a bank takes a property back via foreclosure, it is a long and expensive process and often results in holding the property in their inventory as a non-performing asset. Banks have a limit to the amount of non-performing assets they want to hold. Once this limit is exceeded, they have strong incentive to get rid of the properties at discount prices. For a lender, doing a short sale avoids many of the costs associated with the foreclosure process. Attorney fees, delays from borrower bankruptcy, damage to the property, costs associated with resale, property tax, insurance, etc. all must be paid by the bank during a foreclosure. In a short sale scenario, the lender is able to cut its losses by getting rid of the property faster. Again, this is particularly true in Arizona right now, not only because the real estate market is so slow, but also because the Arizona foreclosure rate is high

How much does it cost me for you to do a short sale on my house?

There is NO cost to you.

Is my house too cheap or too expensive to do a short sale?

Homes in any price range can be eligible for a short sale as long as the basic criteria are met.

Behind on payments or about to fall behind.
Little or no equity in the property
Personal financial hardship

I am behind on my mortgage payments, but not yet in foreclosure. Can I do a short sale?

Yes and this is happening quite frequently in Arizona. Sometimes, these are actually the most attractive short sales for an investor and a lender because a lender can avoid ALL the costs of foreclosure with a short sale before foreclosure is filed. It is more important to have a very good "hardship" letter to explain to the lender why you are unable to make the payments.

How long does a short sale take, I need to get out now!

A short sale takes approximately 30-60 days to complete and sometimes longer. This is very important. This complicated process takes time so to have the option of a short sale, you must act soon. If you wait until 1 week before the foreclosure auction, no one can help you do a short sale. It is simply impossible. DO NOT WAIT.

How do I, as a homeowner, benefit from a short sale?

First and foremost, it relieves the stress of being in foreclosure and being hounded by the mortgage lender; and it allows your to get rid of your big mortgage payment and move on with your live. A short sale allows you to stop the foreclosure and get a fresh start. This is the primary benefit to you. A short sale also prevents additional damage to your credit. Having some late payments and a foreclosure filed has already done damage to your credit. However, a completed foreclosure will do much more damage and lower your credit score tremendously. A short sale results in the mortgage actually being paid off, which reflects positively compared to a foreclosure. Also, it is important to note that the short sale does not cost you any money. You can remove this burden for free.

Will a short sale "save my credit"?

The short answer is yes and no, a short sale can save you from the worst credit disasters. By defaulting on mortgage payments and/or having a foreclosure filed against your property, you have already done damage to your credit. Your credit score has declined and those negatives will stay on your credit report for some time. However, it will get much worse if you allow the foreclosure to continue and do not try to short sale the property. Once a foreclosed property is sold at auction, your credit score is further reduced and when the foreclosure is completed via eviction and repossession of the home, your credit will be even further damaged. If you can complete the short sale BEFORE either of these takes place, then you can prevent that further damage to your credit. In addition, when the short sale is completed, it shows up on your credit as a "Paid" mortgage and a cancelled foreclosure, which shows future creditors that you did take care of your obligations. A short sale can help avoid this, but the key is not to wait.

Do I qualify for a short sale?

Each situation is different and must be evaluated individually. If you believe you fit the basic criteria of:

Behind on payments or about to fall behind.
Little or no equity in the property
Personal financial hardship

What is the exact process to complete a short sale?

There is some paperwork to do at the beginning that we can assist you with but most is handled by us. After we have agreed to purchase your home with a short sale, the process is:
A purchase agreement will be drawn up detailing the short sale the lender will be asked to approve. NOTE: The sale price of the home will mean nothing to you as the seller since in a short sale, no money can go to the seller, nor will you pay any money at closing. The sale price and short sale details will simply tell the bank how much money they will net from the sale. That is the number that is the key.
You will be asked to write a letter detailing the financial hardship that caused you to fall behind on your mortgage. Any other proof of your financial hardships such as bank statements, medical bills, pay stubs, termination letters, etc. should also be included. We will assist you in this process.
After we have prepared and sent the entire short sale package to the lender, the lender will arrange a BPO, which is similar to an appraisal, to determine the value of the property. This can take a few weeks.
Based on the BPO, the bank will negotiate with us on the details of the short sale and after several weeks, they will either approve or deny our final offer.
If approved, a date will be selected to close the transaction just like any other real estate transaction.

What is a Short Sale?

What is a Short Sale