As a real estate professional I often get asked my opinion on short sales. Are they a good buy? Does “short sale” mean it will close faster? If I short sale my house, how long before I can buy another one? How will a short sale impact my credit? All of the above questions are valid and important things to consider for those that are thinking about buying or selling a short sale. Let me start with the basic definition of a short sale. According to the California Association of Realtors, “a short sale is a sales transaction for which a seller’s mortgage lender voluntarily agrees to accept a loan payoff of less money than what is owed on the mortgage loan.” Recently, legislation in California was passed that generally prohibits a mortgage lender from collecting a deficiency or obtaining a deficiency judgment for a short sale involving a loan secured by a one-to-four residential unit property. In sum, this new law protects property owners from being held personally liable for the difference between the loan balance and sales price. The law came into effect on July 15, 2011, with a purpose to mitigate the impact of the ongoing foreclosure crisis and to encourage the approval of short sales as an alternative to foreclosure (CAR, Short Sale Deficiencies Document, 2011). For more information about short sale deficiencies go here: http://www.car.org/legal/foreclosure-short-sale-folder/short-sale-deficiencies/
Make no mistake that the name “short sale” has nothing to do with the timeframe required to close escrow. Short sales can take months to get bank approval but with the right Realtor and a little patience, short sales can be a viable option for sellers looking to avoid foreclosure. Sellers are often required to submit substantial paperwork to prove they have a hardship which is a vital piece of the equation for a successful short sale. Buying at the top of the market and deciding to short sale because of a change in the market isn’t considered a legitimate hardship by the banks. Typical hardships include; death, loss of job, divorce, sudden disability or long term illness etc.Sellers should note that a short sale will impact their credit; however, the impacts are likely to be less than a foreclosure. Typically, sellers that participate in a short sale are able to purchase another home in 3 years. However, several factors are considered when obtaining a new loan, so perspective buyers should always consult a lending professional for advice specific to their situation. Below are general tips prepared by the CALIFORNIA ASSOCIATION OF REALTORS® for those that may be interested in participating in a short sale. As always, feel free to give me a call at 559-269-7063 with any of your real estate questions!
- Hire a REALTOR®!
- Take a Proactive Approach: The short sale process can take a lot of time and effort on your part, so taking a proactive approach to your short sale may help you complete the transaction as quickly and painlessly as you can.
- Knowledge is Your Friend: The short sale process may be new to many sellers and is much different than a normal transaction. It is important to know what you are getting yourself into.
- Do Your Homework: As early as you possible, determine your lender’s short sale requirements and whether you satisfy those requirements.
- Get a Good Price For Your Home: Getting a good sales price not only improves your chances of getting your short sale approved, but may also have other advantages.
- Submit a Complete Short Sale Package: Provide your lender with a complete short sale package containing all the required information and documentation in an organized manner.
- Be Patient But Persistent
- Avoid Scam Artists: Be wary of scams. Your REALTOR® will help you avoid getting duped.
- Hire A REALTOR®! Not all real estate agents are REALTORS®. REALTORS® are members of the NATIONAL ASSOCIATION OF REALTORS® and voluntarily pledge to abide by the strict code of professional ethics.
- Knowledge is Your Friend: The short sale process may be new to many buyers and is much different than a normal transaction. It is important to know what you are getting yourself into.
- Do Your Homework: Gather and review as much information about a transaction as you can before writing an offer to purchase. Your REALTOR® can help you identify which properties for sale in the Multiple Listings Service are short sales.
- Write A Clean Offer: This describes an offer to purchase that the seller is unlikely to take issue with.
- Understanding the Timing: A short sale may take a long time and it is important to understand the timing of the process.
- Prep as Best as You Can
- Manage Your Expectations About the Property
- Don’t Lose Sight of the Big Picture