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Buying, Buying a Short Sale, First time home buyers, Florida Real Estate, Homes for sale in Florida, Mortgage Payments, Real Estate Short Sales, Selling, Selling a Short Sale, Short Sale Advice, Short Sale Information, Short Sale Properties, Short Sales, Short Sales in Florida, South Florida Real Estate, What you need to know
Whether you are buying or selling, the prospect of a short sale can be cheering in the current real estate market. For buyers, a short sale offers the opportunity to get a great deal on a home purchase. For a seller, the short sale offers the opportunity to unload a home that has been difficult to sell at a price that would mean the discharge of the remaining balance on the mortgage.
The current market has led to an increase in the number of short sales performed, and, consequently, the interest in short sales has likewise increased. While a short sale can provide opportunities for buyers and sellers, it’s important to realize that not all short sales go through. Whether you are looking to buy, or hoping to sell, here are some things you need to understand about short sales:
The Bank is in Charge
Before you get excited about a short sale, it’s vital that you understand that the bank is in charge of the transaction. As the lender — and the party that stands to lose the most from a short sale — the bank decides whether or not the short sale goes through. It’s important to remember that the mortgage lender likely has more true ownership in your home than you do. And, since it’s the bank’s money at risk, the bank decides whether or not to allow the short sale.
More Than One Lender May Be Involved
This approval process includes lenders that have provided you with a second mortgage as well. If there are more banks with a claim on the home, then the likelihood of being approved for a short sale goes down. It’s true that other lien holders have less of a claim than a primary mortgage lender, but there is still veto power. If a lender thinks that there won’t be much left over, the short sale may not be approved.
You Could Be Wasting Your Time for Nothing
In order for a seller to receive approval for a short sale, he or she must prove that the house won’t likely sell at a price that pays off the mortgage, and that there is financial hardship involved. Potential buyers should find out whether a home listed as a “short sale” already has approval from the bank before proceeding. If the homeowner hasn’t received approval — or even submitted a package — you could be wasting your time hoping the short sale goes through later.
Before you go down this roard, realize that the entire process could take several months to complete.
Sellers Need to Show They Can’t Afford the Mortgage
Normally, if a seller decides to sell a home for less than what is owed, he or she is required to make up the difference. If the bank approves a short sale, though, the remaining amount owed is forgiven (remember that the IRS views this as income, and the seller will need to pay taxes on it). Before the seller is approved, though, there are some hoops to jump through. Normally, in order for a bank to agree to a short sale, the following conditions have to be met:
- The home isn’t selling at the current price that would pay off the mortgage. Many banks like to see that the home has been on the market for at least 90 days at a higher price before agreeing to a short sale.
- Financial hardship means that the mortgage payments can’t continue to be made on the home. This can include loss of hours, or loss of a job. If the seller can’t make the mortgage payment, it might be worth it for the bank to allow a short sale.
- The seller’s assets are insufficient to pay off the remainder. The bank also wants a look at accessible and liquid assets. If the seller has an emergency fund large enough to pay off the difference, the lender can demand that, rather than allow a short sale.
- Private mortgage insurance won’t provide a big enough reimbursement. It’s true that foreclosure can be a pain for the bank, but private mortgage insurance can ease the pain. The bank will likely weigh the costs associated with each option, and whether an insurance payout can make foreclosure desirable.
Because there is so much involved, many short sales never go through. It’s hard to close on short sales because the bank has to be willing to lose the money. However, in some cases, the short sale does turn out to work well. If the bank doesn’t want to deal with the short sale, it’s possible that it can be approved. Sellers, though, need to be upfront with the bank, and get approval before trying to sell their home under those circumstances. Buyers should discover the situation early on to avoid an unpleasant surprise later.
If you’re getting ready to purchase or sell a property in South Florida please call me at 954-895-7123 or email me at shaunclarkesells@gmail.com