Short Sale? What you need to know.

Are you familiar with what a, “short sale” means, in real estate?

It doesn’t refer to the sale of one level homes, thats for sure. I received a call from a past client, yesterday, who purchased a home within the past several years, and was curious about their lack of equity, should they decide to sell.

In discussing a short sale option with them, it was clear that it was not clear to them, what a short sale, meant. I suspect that there are many others who are not sure about what it means, either.

I will attempt to clarify what a short sale transaction, is.

In simple terms, a short sale refers to a situation where a home owner owes more on the house than the house is worth, and generally, does not have the means to make up the difference at closing. For example, if a homeowner had a mortgage balance of 500,000 on a property, and the property is currently worth 450,000, there is no way for the owner to sell the property, unless they had sufficient assets to pay off the mortgage at closing, so that the mortgage lien could be removed at a closing.

Generally speaking, in a short sale, the bank agrees to accept less than what is owed to them. Most short sales leave a deficiency balance for which the home owner/borrower may or may not still be liable for, depending on negotiations with the lender. In any event, if the lender approves the short sale, the home owner will be able to sell the home.

Banks do not agree to short sales, out of any concern for home owners. It is usually in the banks interests to encourage a short sale because the process is much quicker and cheaper than the alternative, which is normally a foreclosure.

The short sale process is not new. I actually negotiated a short sale for a client almost 10 years ago. What is new, is the amount of short sale and bank owned properties currently on the market. Although the Yardley, Newtown, Upper Makefield market is not as impacted as other parts of the country, there are more distressed properties on the market now, than ever before. From a personal perspective, I have found the banks to be very difficult to work with. They are often extremely slow to respond to offers, and often unrealistic about fair market values. If you want some examples of bank decisions that don’t make sense, please feel free to call or email me.

If you would like information on distressed properties in our area, please contact me.

This entry was posted on Thursday, February 26th, 2009 at 8:40 am and is filed under Buying Real Estate, Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.