The question is, how do you know that a short sale is the best option for you? I hold my broker’s license here in New York, and Mahopac homes market has seem a huge increase in the number of short sales, However, short sales are not for everyone. Lets’s discuss the process and what you would need to qualify.
You may wonder, why would a bank or mortgage hold agree to a short sale? The answer is that banks are not in the business of owning and managing real estate. Their business include lending of money and having real estate owned (REO) on their books would negatively affect their credit rating with the Federal Reserve, and that in turn would hinder them from borrowing money at a good rate. It is less costly for banks to accept less than they originally agreed upon insteaad of incurring the expenses of selling the home at auction or worse, not being able to sell the home at auction and being forced to hold on to the property, until it sells on the open market. The last thing they would want to do is foreclose.
You are probably wondering, how would a short sale affect your credit? Online, someone came up with the the perfect comparison to differentiate between how a short sale affects your credit versus how a foreclosure affects it. She said that one is like getting hit by a car while the other is like getting hit by a mac truck. Some say, as far as credit is concerned there is no difference between the two. From experience, you are able to recover a lot quicker from having a short sale on your credit report compared to a foreclosure. There is at least a 100 point difference between the two with the former seeing drops of about 200 points with the latter seeing drops of about 300. Even if the point drop is about the same, other people have reported being able to purchase a home again two years after a short sale, whereas, after a foreclosure you can forget about buying another home for at least 7 years.
Many people think that because they owe more than their home is worth, that a short sale is automatically an option for them. Owing more than your home is worth is not reason enough. More importantly the bank must see that you are experiencing a financial hardship and are unable to pay the monthly payment amount. Being on time with your payments will make it highly unlikely that the mortgage holder would grant you permission to sell the home for less that you owe and pardon you of the amount not covered by the sale. They would prefer you continue to make the monthy payments.
You have now decided that a short sale is the best option for you, your financial hardship has been proven and the mortgage holder allows you to pursue a short sale. The gruelling process of selling your home will now begin. Preferably, you should list with an agent or broker, instead of selling on your own, since this process would need extra attention and expertise than normal.
Your mortgage payments are still expected during the “for sale” period and the short sale period could take from about 6 months to a year. The process is a long one and requires a lot of patience, but Congress is working on passing legislation that would force the banks to respond faster,with no success as of yet.
Once you have found a buyer, you must then go back to the bank and see if they will accept the amount that was agreed upon between you and the buyer. Negotiating with two parties instead of just a buyer tends to make things a bit tricky in a short sale situation. The bank will then send someone out to obtain a BPO, or broker’s price opinion. They will base their decision on this BPO and whether they believe they are getting a fair price for your home. The bank is already losing on the deal because they are already accepting less than they were promised, so they most definitely would not want to lose more on the deal by accepting less than the current market value.
A small advantage in this situation is not having to worry about paying the broker’s commission or bank fees. All expenses and fees will be covered in the price the bank accepts from the buyer. While in negotiations with the bank and the buyer, the bank will often give the broker a number that they have to walk away with after the commission and all fees have been covered.
All states are different and I am not an attorney so if you think a short sale is for you, please verify all this information with your legal counsel.
