SHORT SALES NOT SO SHORT
REAL ESTATE PRACTICE, SHORT SALES, TIPS FOR BUYERS
September 29th, 2008
A past client called the other day because she and her husband are considering helping their youngest son buy his first home. In discussing the market and the types of properties for sale and what to expect at different price points, I mentioned the fact that many homes listed for sale today are short sales.
She heard the term before so I asked what she thought that meant. She asked “Is that a property that needs a really fast escrow?” I laughed, she laughed, then I went on to explain that a short sale has nothing to do with how long the escrow is. In fact, most short sales require some of the longest escrow periods in today’s market assuming you are lucky enough to be among the small percentage of sales that actually make it to the closing table.
I went on to explain the process and reasons for a short payoff (short sale). When the housing bubble burst, and buyers used no or low down payment loans, their value dropped below the principal balance of their loan. The homeowners found themselves “upside down“. In other words, there is no equity to cover the costs to sell unless the seller digs into their pocket to make up the shortage.
The solution for a small number of sellers in this predicament, is to complete a hardship package provided by the lienholder to see if the mortgage holder will consider forgiving a portion of the loan. The theory here is it might be better for a lender to agree to a short payoff than foreclose and sell the property at a later date for potentially even less money after factoring in foreclosure, holding and repair costs. Unfortunately, most lenders don’t see the light and follow through with the foreclosure action only to end up netting tens of thousands of dollars less when it is all said and done.
No wonder these hardheaded bankers and investors in mortgage-backed securities are going bankrupt left and right. A large number of these loans should never have been made in the first place and they should have heeded the advice of real estate professionals that tried to help them minimize their losses by utilizing the short sale option. Perhaps it’s easier to turn to the taxpayers and ask for a bailout when things go sour than implement sound underwriting strategies to prevent such a fiasco.
After explaining what a short sale really is and the process to try to buy such a listing, my client decided against getting involved in pursuing any short sale listings. Why torment yourself when so many well-priced homes in top condition are available for sale that do not have all of the obstacles common to distress sale listings.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
