With short sales being common place these days, many people are still unaware of how the process works and whether or not it is an option to them as a distressed seller.
A successful short sale transaction occurs when the mortgagee/ lending institute settles for less than the balance owed on an existing loan on Real Property. Just because you have negative equity in your home or owe more to the bank than what it is currently worth does not necessarily mean you qualify for a short sale. There are thousands of people who are upside down on their mortgages, but can still afford their homes. The first step in determining whether or not you qualify for a short sale is to be able to demonstrate to your lender that you have a specific distressing situation that is hindering you from keeping your mortgage payments current.
Demonstrating "distress" to a lender is key to qualifying for a short sale and opens the door to the entire process. Lenders will consider the following circumstances as cause for allowing a short sale to be facilitated: loss of substantial income, serious illnesses that limit your working hours, loss of a spouse, divorce, and so on. As long as there is legitimate evidence and documentation that you can no longer make your payment, you should qualify for a short sale.
Unfortunately, many agents who list homes as "potential short sales" do not do their homework beforehand. As previously mentioned, you will not qualify for a short sale because your home is now worth much less than when you purchased it. Carelessly listing a home for sale as a short sale when there is no distressing situation not only wastes not only the listing agent's and sellers' time, but also any prospective buyers who may have interest in purchasing the listed home.
For instance, a buyer will be locked into a contract with the seller for at least 90 days while the sellers and their agent present the contract to the mortgagee to obtain short sale approval. During this 90 day period the buyers should not be viewing any other homes with their agent, which means they may miss out on other great opportunities while they wait for a response from the sellers' bank.
Ultimately, the lender has the final word on either accepting the contract as is, countering the contract to a higher price and more favorable terms, or just denying the entire short sale due to lack of cause. The latter of three responses is unfortunately all too common.
Another misconception about short sales is that the homes sell well below market value and that they are all great "deals." This is completely false. Lenders are willing to take a loss on the amount owed versus true fair market value. They are not going to accept an offer that does not coincide with market value, which will be determined by an independent appraiser hired by the bank. This is why it is critical that you are aware of the most recent sales comparables within the subject property's neighborhood.
If the list price seems to be well below market value and the home is in relatively the same condition as the sold comparables then it may be better to just skip that home as it is considerably unlikely that a lender will accept such a low offer when there are much higher comps available demonstrating the price range that homes should be selling for in any particular area.
For further guidance on short sale qualifications and how to successfully purchase a distressed home, do not hesitate to contact me.