FAQs About Short Sales
You likely have a thousand questions on your mind about foreclosures, short sales, and distressed properties. Fortunately, you're not alone! As a Thousand Oaks real estate professional, I've heard hundreds of questions about short sales from both buyers and homeowners. Here are a few of the questions most commonly asked about short sales.
What Do You Want to Know?
- What's the difference between a regular sale and a short sale?
- What's the difference between a short sale and a foreclosure?
- How does a short sale impact my credit score?
- Why would a lender even agree to a short sale?
- What is required to qualify for a short sale?
During a typical real estate transaction, the homeowner cleans, declutters, and improves their home in order to attract more buyers and command a high price. At the end of the sale, the homeowner profits all the proceeds.
During a short sale, the lender must first agree to allow the homeowner to short sell their home before putting the home on the market. After the home is sold (short of the total mortgage amount), the lender accepts the proceeds.
While selling a home can come with its fair share of challenges, a short sale involves additional negotiations and understanding of all possible ways to avoid foreclosure. That's why it's crucial to work with a qualified real estate professional — an agent who holds a Certified Distressed Property Expert® designation — when you are faced with a short sale.
When a homeowner falls behind on their mortgage payments, the bank may send a Notice of Default letting the homeowner know they are at risk of losing their home and being evicted — in other words, foreclosed. Foreclosures have a detrimental financial and personal effects: the foreclosure will affect the homeowner's credit score for 7 years, prevent them from qualifying for a mortgage for 5 years, appear in local newspapers along with their name, and show up when employers are conducting background checks.
Short sales are just one way to avoid a foreclosure, but must be approved by a lender. Short sales don’t have quite as devastating an impact on a homeowner's personal life and financial situation. A short sale may allow a homeowner to salvage some of their credit rating, apply for another mortgage in 2 years, and keep a foreclosure off of their public record.
While short sales aren't as financially detrimental as foreclosures, short sales have a similar effect as foreclosures on a homeowner's credit score. In fact, myFICO states that "The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure are all 'not paid as agreed' accounts, and considered the same by your FICO® score."
Foreclosures can cost a lender a lot of money. In fact, the average foreclosure can cost a lender between 35% and 50% of the value of a property!
While lenders are more likely to agree to a short sale, you will still need to work with a qualified real estate agent to negotiate with the lender to first agree to a short sale. Agents like me, with the Certified Distressed Property Expert® Designation, have undergone extensive training in negotiating short sales.
Not every homeowner can quality for a short sale. Generally, a homeowner must meet one or all of the following circumstances in order to short sale their home:
- Financial hardship — Because of a mortgage payment increase, divorce, job loss, excessive debt, unplanned relocation, or other situation, the homeowner cannot pay their mortgage.
- Monthly income shortfall — The homeowners is either currently unable to afford their home or will soon be unable to afford their home.
- Insolvency — The homeowner has insufficient liquid assets and are unable to pay down their mortgage.
Need a Qualified Real Estate Professional?
If you or someone you know is facing a foreclosure and is considering a short sale, contact me. As a real estate agent with the Certified Distressed Property Expert® designation, I have extensive training and knowledge of the short sale process and can negotiate with the lender on your behalf.