Taking the Shame Out of Short Sales

My colleague and our in-house short sale expert Laura Treonze is my  guest blogger this week. Laura explains the top 10 myths surrounding the short sale process. With so much misinformation out there on the subject of short sales, this should give us all some clarity.

Given today’s environment it is shocking the amount of misinformation that continues to be spread about short sales.  Sadly much of it is peddled by uneducated attorneys, fearful Realtors, and not-really-helpful “friends”.  Everyone has heard a horror story and they happen, however, when conducted properly there are more people who are helped than hurt by a short sale.

Here are the Top Ten Myth-Understandings That Take The “Shame” Out of Short Sales*.

1. All homeowners who conduct a short sale are in foreclosure - There are many reasons a homeowner may find themselves in a short sale situation.  A short sale is simply a request for the lender to accept less for a home than the amount owed on the loan.  Relocation and divorce are two very common reasons for a short sale and often in such situations sellers are not behind on payments.
2. Sellers should struggle to make mortgage payments and wait for the market to rebound before they consider selling - If you are struggling to make your mortgage payments it may not be in your best interest to hold on to a depreciating asset.  Talk to a Realtor who specializes in short sales to help you understand your options.
3. You must be behind on payments to be considered for a short sale - The requirement for a short sale is hardship, NOT missed payments.  Hardship can come in many forms.  Again, divorce and relocation are two instances where the sale of a home is required and yet a seller may not be able to sell the home for what is owed.  It is important to work with an experienced short sale specialist to help prove hardship.
4. The impact of a short sale will prevent you from buying another home in the near future - The impact of a short sale on your credit is minimal.  The major impact on credit is when a homeowner is behind on mortgage payments.  Either way, a short sale is always a better alternative to foreclosure as it relates to your credit score.
5. The house needs to be priced close to what is owed for the bank to consider an offer - A short is a short.  Regardless of whether you are short $1,000 or $1,000,000 the process is the same.  The house should be priced according to market value.  A home will not sell for what a seller needs or for what the bank wants.  A home will only sell for the price a buyer is willing to pay.  You need an offer to complete a short sale so pricing the home properly is imperative.
6. The borrower will owe the full deficiency (difference between loan amount and sale amount) at closing - It is unlikely the borrower will owe the full deficiency – in my 5 years of negotiating short sales I have never seen it happen.  For HAFA qualifying loans there is guaranteed no deficiency.  For all others, a deficiency is often negotiated pennies to the dollar and in some instances a no interest payment plan can be negotiated.
7. The lender will not accept less than the appraised value - This is a common statement from attorneys who don’t understand the real estate side of the short sale process.  Many of today’s appraisals are done by appraisers who are not familiar with the local market which leads to inaccuracies.  There are many ways an experienced short sale Realtor can work through this issue.
8. The bank will not negotiate with a buyer - It is the lender’s job to to recover as much money as possible for their investors.  With that being said, they often will not accept the first offer and will try to negotiate with the buyer.  It is important that the buyer’s agent is educated and s/he has prepared their client accordingly.  Even when the bank says they won’t go lower, they often will.  An experienced short sale agent will be able to help guide all parties through the process.
9. The bank will not offer concessions for inspection issues - It is difficult and yet not impossible to get inspection concessions.  It is important that offers be made based on a clear understanding of the “as is” condition of the house – an inspection prior to bank approval is highly recommended.  However, in some cases and depending on the lender, concessions will be allowed.  Again, an experienced short sale agent can help navigate all parties through the process.
10. Sellers conducting a short sale should be ashamed of their situation - Regardless of whether you are behind on payments or you simply need to sell your home for less than the amount owed, a short sale is the honorable option.  The alternative is to walk-away and allow a foreclosure which negatively impacts your credit and the home values in your neighborhood.  Understand the process so you can make the decision that is best for you, your family, and your neighborhood.

*  Keep in mind each bank, servicer and negotiator is different.  This information is based on my personal experience negotiating short sales with a 96% success rate.

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