What is a short sale?
Plenty of buyers call us very excited about deals that sound too good to be true. They’ve found a great house in a great neighborhood for an unbelievable price. It’s a short sale, but what exactly does that mean? A short sale becomes available when the seller owes more on their mortgage than what the house is worth. In essence, they’re “shorting” the bank if they sell. To avoid foreclosure, many homeowners decide to put their home on the market as a short sale, thus offering it to the general public at a discounted price.
Who Should Consider Listing a Short Sale?
Maybe you had an unexpected illness or injury that caused you to become delinquent on your mortgage. Maybe you’ve suffered a recent job loss or began caring for an elderly parent. Whatever the reason, you’ve fallen behind on your mortgage payments and don’t see a way to get caught up. You’ve got to do something before you receive that acceleration notice. What’s an acceleration notice? It’s the final letter in a series of nasty-grams from the bank in which they demand full payment of the mortgage balance. If you can’t pay the full balance, the bank will foreclose on the house and sell it at a sheriff’s sale. The key is to get in front of the problem and talk to the bank before you get to this point.
It seems easier to avoid the calls and letters, but all you are doing is creating bigger problems down the line. Unlike many other things we own, a home is extremely personal. It’s easy to look at the bank as the enemy when everything is going wrong in your life and they are threatening to take the one place you are supposed to feel safe. Take a deep breath, calm yourself, and try not to demonize the bank. It will just make them harder to work with. If you are only 30 – 60 days delinquent, talk to your lender. They are more understanding than you may think and will likely work with you on a repayment plan to get your loan current again. When you’re beyond the 90 day mark and it looks doubtful that you can catch up, it’s time to consider a short sale.
In the first several years of home ownership, the majority of your payments go towards interest instead of principal. Unless you’re making regular additional payments to the bank, your balance remains relatively high until more time has passed. If you purchased the home at market value and have no equity built in, this means that you probably owe more than the home is worth. Especially if there are any repairs needed. With a short sale, you have the option of listing and selling the home, having the remainder of your debt forgiven, and possibly receiving money from the bank to help you move into a more affordable place.
Who Should Consider Purchasing a Short Sale?
Literally anyone can buy a short sale. Sure, there are some downfalls, but there are also great deals to be had. So, what does it take to buy a short sale? In one word; patience. You’ll tour the house, fall in love, and put in an offer. Then you’ll wait. And wait some more. And just when you think the waiting should be over, there will be – you guessed it, more waiting. It can be really trying, especially when you’re excited to move into a new home. Unfortunately, banks work on their own time frame and no one really knows what that is. You could get lucky and receive a response to your offer within a week or two. Or, you could wait a couple of months. However, if you have the staying power, you can get a fantastic price on the home of your dreams.
Once the bank has accepted your offer, you’ll go through the rest of the process as normal: inspections, appraisals, and then closing. Sometimes, inspections find things with the house that make it unmortgageable. This could be anything from mold to foundation or roof issues. Unfortunately, sellers that have listed their home as a short sale generally do not have the funds available to fix any major issues that come up in home inspections. If this happens, your Realtor will need to renegotiate a lower price with the bank and you may need to consider a construction or 203k loan which allows you to roll the costs of repairs into your mortgage. (More on 203k loans soon) Start to finish, the process could take anywhere from the average 60 days up to several months. If you have the time and patience, you could close on a home for several thousand dollars less than market value and move in with equity.
Team Lapinsky has partnered with Gerry Gray Law. Gerry is a local attorney who specializes in short sales. An excellent resource for homeowners, Gerry guides many of our clients through the process of listing and selling their homes via short sale. He holds the same high standards for customer care that Team Lapinsky strives for in every transaction. Give us a call to discuss your options today!