3 myths about Short Sales
As you will recall in my recent blog, “What is a short sale?”, I explained the basics of short sales.
Even though it is popular topic in the news, there is still a lot of mystery and gray area surrounding it. So, it’s easy for misinformation to spread. Today I want to clarify three myths I often hear.
Myth #1
In a short sale situation, the bank owns the home.
This is incorrect. That is the case with a foreclosure, which is when a lender has repossessed a home from the owner, as a result of continued loan default, and is selling it in order to recover their loss on the loan. A short sale is when a homeowner decides to sell their home, usually as a result of a hardship like a job loss, due to the fact that they are no longer able to pay their mortgage. In this situation, the homeowner is “upside down,” meaning they owe more on the loan than their home’s current market value. When we go to sell the property the short sale lender has the option to accept or reject a “short payoff”. But the seller still owns the home and they get the final say as to whether they will accept a buyers offer and their lender’s short sale offer as well.
Myth #2
Short sales take up to 1 year to proceed to closing.
Well…sometimes this is true, but very uncommon. It depends on a lot of factors. Every lender is different. Sometimes sellers do not cooperate. And there are a lot of hurdles to get through with a short sale, often times adding to the amount of time needed to get to closing. Though over the last 6 months my team and I have noticed a considerable difference in the speed and efficiency of the process with most lenders. I’ve seen short sales close as quickly as 30 days and take as long as 1 year. Every situation has it’s own set of circumstances and challenges, but if you are patient and have the option to wait, it can often pay off for both a seller and a buyer.
Myth #3
If you sell your home as a short sale the lender will forgive your debt.
This is entirely up to the lender in question. Once they accept the short sale offer, and send the final short sale approval letter, it contains all of the terms of the sale and how the proceeds will be distributed. At that time, they can request the seller pay back a portion of the loan through a promissory note or a cash contribution at closing. Or the letter may state that the debt has been forgiven. It is the seller’s responsibility to make sure they get in writing, from the bank, that the debt is forgiven in it’s entirety. That is the only way they can be sure they won’t encounter additional debt collections down the road.
If you are considering selling your home or buying a home, and you have questions about short sales, I would be happy to speak with you. Please contact me here. I always recommend a seller consult a real estate attorney and their accountant regarding the possible risks associated with this type of sale. It’s not for everyone, but it could be a good solution to your situation.
