If you’re reading this then you’re looking for an answer to questions about when to do a short sale and not lose your home on sheriffs auction and get evicted? Doest the short sale is the right thing to do for you? How often people do a short sale? What are other options instead of a short sale? I’m a certified short sale agent and i will try to answer all those questions below.
Selling your house “short” might be a good or a bad idea. It depends on various factors. There is many things to consider before going this route.
Things to consider before doing a Short Sale
- Are you selling or buying the house?
- What is your financial situation?
- What is the timeline?
The above points are really important questions to answer before moving forward with purchasing or selling your short sale. Before doing that you have to understand what a short sale is, its advantages, mistakes that you may commit and all things which apply to your situation.
WHAT IS A SHORT SALE?
Our life is unpredictable, we can get sick and lose a job, we can find another one which pays less so we cannot afford a house that big anymore. So many different things can happen in our life like a divorce, broke up or a funeral in our family.
Having a house it’s the biggest investment in all peoples life, we’re buying a car, computer but a house is the most expensive thing in our life and then something happens. You’re stuck with a mortgage loan that needs to be paid off, then you can have a real problem.
Late payments will wrack your credit score and can lead to having a bank foreclose on your home. Late payments will remain on your account for 7 years, without the possibility to remove or dispute them.
Most banks don’t want to foreclose and take your home away from you. They want you to pay your mortgage or sell your house to someone getting back the money they lend to you years ago.
Banks are in the making money through lending business, not the property management businessWhen foreclosing on someone’s house, both sides lose that’s why nobody wants to go this route.
So what is a short sale? A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished. The rest of the payment is forgiven by a bank. Bank loses some money but getting money back which lends years go by selling the property to another person which get a loan from another bank.
Here is a an example. Someone still owes $200,000 to the bank for a house that originally cost $300,000. With a short sale, the person can sell the house for $175,000 and the bank will forgive the other $25,000. In this case scenario the appraised (estimate) market value of the house is $200,000. In most cases this should never happend (maybe in a recession when someone bought a house in 2007 and in 2009 the value went down for about 50%+)
So why banks are agreeing to lose $25,000 ? Instead of taking the house back and selling it again. The answer is simple, the loan in default means no income from the property and it also requires to spend money (snow plowing, loan mowing, paying taxes, utilities during winter and insurance). After foreclosure the bank needs to pay also for
- a court
- setting up an auction
- complying with all the laws in your state
Banks can break even or lose money when they sell a home at auction. In some cases the property will not even sell at the auction and the bank ends up owning the property, which is the worst scenario.
Banks want to do a short sale but they can only happen during very specific situations that protect the lender.
Steps To Avoid a Foreclosure
- The house needs to be valued at less than the amount of money that the person paying the mortgage owes to the lender.
- The house value decreased considerably before now and the current owner has negative equity.
- A Lender needs to give permission in order for the deal to move forward.