6 COMMON SHORT SALE MISUNDERSTANDINGS
Short sale transactions can be an excellent choice for homeowners who must sell and who owe more on their homes than their current values. Unfortunately, there are numerous misunderstandings regarding short sales and it is extremely important to understand the proper procedures and best practices in this process should you choose this path.
Misunderstanding # 1: THE LENDER/BANK WOULD RATHER FORECLOSE THAN CONSIDER A SHORT SALE TRANSACTION.
This is likely the most common misunderstanding. In reality, banks DO NOT want to foreclosure on properties, as the foreclosure process is rather costly and lengthy. Banks, lenders, investors, and even the Federal Government have stated publicly if a homeowner is qualified for a short sale, the transaction needs to be considered, based upon:
- FINANCIAL HARDSHIP: There is a current hardship causing the homeowner to have trouble affording his mortgage.
- MONTHLY INCOME ISSUES: The lender will want documentation showing that the homeowner cannot pay the monthly payment or will soon not be able to afford the monthly payments.
- INSOLVENCY: The lender will want proof that the homeowner does not possess significant liquid assets that could pay down the debt of the mortgage.
Misunderstanding # 2: YOU MUST BE LATE ON YOUR MONTHLY PAYMENTS TO BE ELIGIBLE FOR A SHORT SALE.
While this may have been true in the past, today, lenders/banks are interested in verifiable hardships, monthly payment shortfalls, or pending monthly payment shortfalls and insolvency. If the homeowner meets these requirements, and is unable to afford his mortgage, act immediately. Any delay may limit the homeowner’s options for a short sale transaction.
Misunderstanding # 3: IT IS TOO LATE TO NEGOTIATE A SHORT SALE TRANSACTION BEFORE THE FORECLOSURE.
This misunderstanding probably hurts the homeowner the most. Many mortgage holders do not understand that foreclosure is a long process, and there is time to evaluate options and potentially make decisions that could result in a better outcome.
Misunderstanding # 4: LISTING A PROPERTY FOR A SHORT SALE IS AN EMBARRASSMENT TO THE HOMEOWNER.
It is quite understandable that homeowners may have reservations about going public regarding their financial distress. Recent predictions, however, indicate that one in eight homeowners in the U.S. is currently behind in their payments.
Misunderstanding # 5: SHORT SALE TRANSACTIONS ARE IMPOSSIBLE AND NEVER GET APPROVED.
This is inaccurate. Short sales are becoming more streamlined and lenders have become more knowledgeable and willing to work with homeowners to complete these types of transactions. Real estate professionals are also becoming better educated in the short sales process. For example, realtors with the “Short Sales Certified” or “SSCertified” designation have received extensive training in methods to help homeowners in distress and how to successfully process short sale transactions. There are absolutely no guarantees in any distressed situation; however, the short sale transaction process has become more efficient, while timelines for approval have also become much shorter.
Misunderstanding # 6: PROSPECTIVE PURCHASERS ARE NOT INTERESTED IN SHORT SALE TRANSACTIONS.
This is a major myth and homeowners hear this frequently, oftentimes causing them to be wary of listing their homes as short sales. This is not accurate. In fact, many real estate professionals receive phone calls/emails from prospective buyers who only want to look at short sales or foreclosures. For prospective buyers, short sales and foreclosures are synonymous with, “wise financial transactions”. International buyers are targeting these distressed assets as well. Those real estate professionals who choose to obtain the necessary knowledge to become proficient in the short sale transaction process will benefit and have the potential to increase their income.
The information in this article was provided by James Browning, founder and instructor for the SSCertified designation.