Short Sale Transactions: Win-Win with The Short Sale!

Win-Win with The Short Sale!

I hate to see people lose their homes. These days it is happening too often as many folks are unable to keep up with mortgage payments for many reasons. Sometimes a home goes to foreclosure because of divorce, or illness in the family, or because someone loses their job.

Today, most buyers end up in foreclosure because they bought overpriced homes at the crest of the Phoenix Housing Market and abused the wrong loan product such as 100% financing, pay-option ARMS or stated income loans. These people find themselves “upside down” in their properties – owing more than the property is worth. They cannot afford to sell the house because it would mean finding cash to bring to the closing-table, and not having enough cash, income or a combination of both is most likely the cause they got in trouble to begin with. If they were already at the limit of their financial resources, any kind of little bump in the road could send them to foreclosure.

Welcome to the world of the Short Sale. This is where a knowledgeable real estate agent can help these people sell their home in what looks like an impossible situation. The secret is understanding how a short sale works to every-one’s advantage, and then acting as the deal-maker between all the parties.

The homeowners don’t want to lose their home to foreclosure – they need to get out but can’t afford the cost to settle. Most of the times, homeowners facing foreclosure are under such emotional stress that they don’t consider their near future. No doubt, a short-sale will still negatively impact the seller’s credit-score; however, it is not nearly as bad as having a foreclosure on the credit report for seven years.
With lending guidelines tightening up and the sub-prime mortgage market in trouble, it is most likely that borrowers with a foreclosure on their record will have a more difficult time to get a mortgage in the future when trying to get back on their feet.

Lenders don’t want to go to foreclosure – it costs time and money because of the cost associated with a trustee’s sale, trustee’s fees and legal fees. On top of that, all the foreclosed loans become non-performing on the books and may affect the lenders ability to sell their loans on the secondary market. Therefore many lenders may be able to be convinced to let the borrower sell their home for less than what is owed on the property.

So, at the start of the short sale process you have both sides wanting to turn a bad situation to one with a “happy ending”. Add to this a qualified buyer recognizing the opportunity to acquire a property at below market value. Now you have the ingredients for a successful resolution all around:

• The sellers avoid foreclosure

• The lender takes a discounted pay-off to avoid the foreclosure process and saves money

• The new buyer steps into the property with immediate equity

Most homeowners who could benefit from a short sale don’t even know the option exists. Too many real estate agents don’t know about short sales, either, and are missing opportunities for growing their business with a win-win solution.

Disclaimer:

There are a couple of things to consider! A short sale will affect the seller’s credit score. Sellers must understand the terms of the short sale and should obtain any agreements in writing (some of the forgiven debt may be required to be paid back as a personal obligation). Forgiven debt may be treated as income for tax purposes. Buyers be aware that short sales take a long time to close (they call them short sales for a different reason). The purchase contract always is contingent upon a short sale agreement acceptable to both , the seller and the lender. And finally, always consult with your attorney and tax professional.

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