Don’t Ruin Your Credit with a Home Foreclosure; Try a Short Sale First!
Categories: Ask Andy, Chattanooga Real Estate News, For Home Sellers, Mortgage and Finance
By Andy Hodes, Realtor, Andy Hodes & The Scenic City Team
I ran into a friend a few days ago, let’s just call her Norma, who lost her great job several months earlier; her new job pays much less. Norma was struggling to barely pay all her bills, including a big mortgage. She asked if I could quickly sell her home so she could look for a place to live that would fit her new budget.
After a few questions I quickly determined that Norma couldn’t sell her home for a price high enough to pay off her mortgage. We call this being “upside down”- a bad place to be if you need to sell quickly. Norma said that if she couldn’t sell it, that she’d just walk way and let the bank foreclose. I suggested trying a “short sale” of her home instead, which could be a real win-win for her AND her lender. Norma wanted to know more.
In economic times when home prices keep going up, we don’t hear too much about short sales, but now that we’re in a buyer’s market with increasing inventory and declining home values, short sales become more prevalent. More and more people need to sell - and sell now - but they owe the bank more than their home is worth. There’s no need to walk away and have a foreclosure ruin your credit for years to come.
Lenders typically place a lien on your home and property that gives them the right to foreclose and take the property back if you don’t pay them on time or in full. A short sale (also known as a short payoff) occurs when your lender agrees to accept LESS than the full loan amount owed so you can go ahead and sell your home and get out from underneath your mortgage. Many times the lender will accept the partial payment as payment in full; sometimes the lender will still require that you repay the shortage after the sale - but the bank allows the sale to close without a lien.
The most frequent question I’m asked about short sales is, “Why would my lender agree to a short payoff?” The answer is simple economics; foreclosures are expensive with banks typically netting less than it would through a short sale. A seller also comes out of the process without a damaging foreclosure noted on their credit report and, many times, without having to pay back the short fall. Short payoffs - or charge offs by the bank - are noted on consumer credit reports, but is much less damaging to your credit than a foreclosure or bankruptcy.
In order for you to qualify for a short sale, you’ll need to prove a financial hardship to your lender, but first get your house listed with a Realtor who understands the short sale process. The Realtor will list your home and help find a buyer with the best possible offer. The offer, along with proof of your financial hardship, some information on the local real estate market and a broker estimate of your home’s value and some pictures are all packaged and sent to the bank for its approval.
I prefer to use an intermediary, like Short Sale Headquarters, that specializes in negotiating short sales with lenders - its fees are actually paid by the lender! A company like Short Sale Headquarters specialize in presenting the case to the lender and getting the deal done. Many times lenders don’t respond well to the seller or their Realtor making the services of an intermediary invaluable. Also, in a short sale situation, a seller is usually not allowed to walk away from closing with any money - all proceeds go to the lender.
Norma listened carefully and thanked me for giving her a great alternative. Now we can put her home on the market at a realistic price to get a great offer that her lender is likely to accept. Once this is behind her, she’ll truly live happily ever after!
What a find!!! I’m so glad I checked out your site again tonight…. who’s ever heard of “Short Sale Headquarters”!!!! Not me! I wish I had.
I had three short sales last year with great offers on each and I just could not get the banks to close the deals… after many months of wasted time we lost all three of them.
I had closed two or three earlier in the year but towards the middle of the year the volume killed off a lot of deals… they just could not get paperwork done.
Nice post guys… keep it up!