Short Sales Myths
Short Sales have become a major real estate resource during the last couple of years. They have come to represent a valid solution for homeowners in an "underwater" position, which means that they owe more money on their mortgages than what the property is worth, and they need to sell the property because they cannot afford it any more. Many false assumptions have developed and it is necessary to clarify and explain.
·
Bank
prefer Foreclosures to Short Sales
Banks
are not in the business of taking over properties, fixing them, maintaining
them, and selling them. They know that every time they try, it is a rather
unpleasant experience. Therefore, they would do whatever they can to avoid
foreclosure. At least, that is what they should do. The foreclosure process
is an additional high cost that would add to the mortgage loan balance, the
eventual unpaid taxes, HOA unpaid fees, and even sometimes pending liens.
They are up to public declarations that, a short sale is a valid
consideration that should be analyzed carefully, when the borrower meets the
requirements. And of course it makes sense, because in every case they will
get more money from a short sale than from a foreclosure.
The qualifications for a short sale include:
A) Financial Hardship – There is an overwhelming adverse situation that is curtailing borrower's ability to pay.
B) Loss of Income – Calculation of your ability to repay your mortgage, taking into account your sources of income (salary, investments, etc.) will convince the lender that you cannot or will not be able to make the monthly payments.
C) Insolvency – Borrower does not possess assets that could help to reduce or repay the balance of the mortgage loan.
· Wait until you are behind in your mortgage payment before attempting a Short Sale
This has been often the rule for many lenders. However, lately, lenders have been more realistic about their options and will seriously consider a situation of income shortfall, or sudden hardship, or any reason that would cause an imminent cessation of borrower's payments. That means that if a borrower feels that his or her capacity to continue to pay normally his mortgage, an immediate action is recommended. Delays will reduce the available option and increase the possibilities of a foreclosure. We recommend contacting your lender as soon as possible.
· Banks are expecting a federal bailout, and have no interest in Short Sales
There is no structured bailout that we know about, regarding the transfer of all distressed properties and assets from Banks to the Federal Government. And the extent of these trouble assets is of such magnitude and it is so spread out worldwide through a variety of exotic financial securities, among thousands of investors, foreign banks and sovereign funds, that we cannot expect that it could ever be seriously considered. The only alternative is for everybody to avoid as much as possible foreclosures and bankruptcies. And Short Sales are one of these alternatives.
· A Short Sale can harm a homeowner social standing.
You are not alone. You would be surprised by how many homeowners in this country are in your exact same situation. According to recent estimates, one out of five homeowners in the U.S. is in the same situation, and about half real estate sales could be short sales or foreclosures. You have been caught in a unique market situation, when prices caught fire during a few year period, then dropped like a rock. Many millionaires lost most of their assets in the last financial disaster, as you and many other were caught off-guard in a similar situation. So concentrate on solving your present situation and give it your immediate attention.
· Foreclosure will take place before you've been able to negotiate a Short Sale.
The fact is that, once a short sale is initiated, it makes sense for a lender to delay the foreclosure process. If the short sale is being strongly negotiated with valid arguments, and it is evident that a sales contract could be obtained in a reasonable term, then it can be expected that the lender could temporarily hold the foreclosure procedure, giving the borrower sufficient time to complete the sale. At the present time, banks are so loaded with late payments, distressed properties, "underwater" borrowers, that they are literally overwhelmed and will do more than ever to avoid a foreclosure.
· Short Sales are a mission impossible. They almost never complete.
Of course that they are a quite complex, and often frustrating process, and you shouldn't bet on a one-two-three procedure. Results vary between different lenders, but it is false that they are an illusion.
Short sales are completed every day, and by the thousands. It is true that a sizable part of them don't. But it is also true that many short sales are not pursued with the help of a professional specialist. The real estate downturn was so steep and sudden that neither lenders nor realtors were prepared. Short sales were a rarity and at every level the learning process was painful and frustrating. But progress has been made and co-operation between lenders, realtors, attorneys, buyers and sellers has sensibly improved.
· Buyers are not interested in Short Sale Properties
Of course it has happened a lot that short sales were an almost impossible purpose. Offers were made by buyers that lead to nowhere. Banks often acted unreasonably and even stupidly. But we have seen how things have evolved and how the market is swamped by avid investors in search of bargains. And bargains can be found not only foreclosed properties, but more and more thanks to a short sale. It is of course imperative to choose a realtor who can guide the buyer, help him select real estate situations that are handled by capable professionals, and sort out those that are not worth their time and efforts.