Short Sales 101: Understanding The Process

Home foreclosures are still on the rise across the United States. Many homeowners have no idea where to turn or the many options that are available to them to stop foreclosure. One of the tools available to them is short selling the property. While it may not an ideal solution for the homeowner, it can stop the process. A short sale is by no means guaranteed, and before it can be done there are some hoops the homeowner will need to jump through. Years ago short sales were rare. Now, in foreclosure heavy cities short sales are quite common. Let’s take look at the process, what it is and how it is done.

What is a Short Sale?

The definition of a short sale (or the short sale process) can be defined as such: when a home or other property is priced below current market value, but less than the amount the property owner owes the mortgage holder on the property.

So the homeowner starts getting behind on their mortgage payments and will not be able to afford the payments. They realize that the property will go into foreclosure in the foreseeable future. The current market value of their property is now less than what they owe. They contact the mortgage holder or holders if they have a second mortgage and inquire about the possibility of a short sale. A short sale isn’t a magic fix however. In some states it will not eliminate the entire mortgage debt. The homeowner may still be legally liable for the difference. If the bank agrees, the short sale can go forward.

The Process of a Short Sale

Before a property can be put up for sale as a short sale, the mortgage company must approve it. Once the approval has been granted, the property can be listed for sale through a Realtor. A word of caution about short sales and choosing an agent to list the property, make sure the Realtor listing the home has plenty of short sale experience, both as a listing agent and a buyer’s agent. The short sale sales process isn’t like a normal home sale. It takes far longer to complete and there are additional forms that need to be completed in order for the sale to go through. On top of all of that is the time constraint the sale will be under to avoid the mortgage from going 90 days past due. Once the home is listed for sale, the listing agent will present any offers to the homeowner and the mortgage holder. All offers on the home must be approved and accepted by the mortgage holder. That can add several days or even weeks to the process, meanwhile the clock is ticking. Also, if the property has a second mortgage on it, the second mortgage holder must also approve the sale. Prospective buyers might also be put off by the length of time to receive an answer and look at other property.

Because of these factors, short sales aren’t a magic bullet. Even if everything goes as planned, they have a significantly longer closing time than normal sales. The percentage of short sale properties that close is significantly lower than regular listings as well (only 11% of Nevada short sales are ever sold). It is important you have a clear understanding of this before you attempt to short sale your home. Hopefully you now have a clear understanding of the short sale process and what it entails.