As foreclosure rates hit record levels, more sellers are turning to short sales as a way to avoid foreclosure, and homebuyers and investors are looking for opportunities. People ask us every day: How does a short sale work? Is a short sale better than a foreclosure? Is a short sale a good way to find a great deal on a home? If you have similar questions, read on!
What is a Short Sale? In a short sale, the seller negotiates with their mortgage lender to accept a price that’s less than the amount owed on the property. As part of this agreement, the lender will often settle with very reasonable terms, and many times will forgive the rest of the loan. As a result, the seller doesn’t have to go through a foreclosure, the buyer may pick up a property at a discount, and the lender avoids taking on the burden and cost of a foreclosure.
Why is a short sale a better than a foreclosure? There are so many reasons why this is the case, but we’ll discuss the most significant. First, foreclosure is on your permanent record. Homeowners will always have to disclose that they had a foreclosure on any mortgage application they complete in the future; there is no 7-year limit on this credit item. Second, credit scores will be lowered significantly. Along with bankruptcy, a foreclosure is one of the most devastating credit issues you can have in relation to your credit score. Finally — and most importantly — in the case of a foreclosure, your lender can seek a deficiency judgment against you to collect any amount they do not recuperate at the bank sale. With a short sale, you control the process and settle with the bank at closing, so you can move on with your life, knowing that the issue is resolved and complete.
What is the government doing to help distressed homeowners? Good news for all: effective June 15, 2012, distressed homeowners whose loans are backed by Fannie Mae and Freddie Mac should expect to receive a decision on a short sale offer within 30 to 60 days. In April, The Federal Housing Finance Agency (FHFA) made a decision to require servicers to review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer, in order to “prevent foreclosure, keep homes occupied and help maintain stable communities.” This is a welcome change from the past, where qualified and motivated buyers walked away from their short sale offers because banks were taking anywhere between three and 12 months to respond.
Are short sales a good option for finding reduced prices on homes? Yes… but you must be patient! Even with the FHFA’s direction to align services, buyers may get a great property at a discount, but they also will need to go through some extra paperwork and waiting to complete the transaction. The new FHFA alignment of servicing standards that will result in servicers greatly reducing the decision-making timeline will also streamline the buying process. This is a great improvement, but buyers also need to be prepared to close within about 30 days after receiving bank approval, and also roll up their sleeves if that new property needs fixing up.
The Steller Group’s skilled agents have a proven track record of helping struggling homeowners avoid foreclosure, as well as helping homebuyers and investors profitably close on short sale homes. These are complicated transactions that require expert knowledge and diligent follow-through for a successful closing to occur. If you are interested in buying a short sale, or you or someone you know is trying to avoid foreclosure, give The Steller Group a call at (303) 539-5228. We are happy to provide you with FREE counseling and resources.