I am amazed at this newfound craze called the “short sale” and the resulting hysteria in people who think that it is the quick fix for their financial problems. In short, it is not a quick fix and in many cases, it’s not a fix at all.
A short sale occurs when a homeowner sells their home for less than the outstanding balance on their loan with bank approval. It’s a painful process and I have a few bits of advice that might help you.
After a recent discussion with a short sale specialist…I discovered some important facts. First, it helps to not have ANY MONEY. You heard me correctly. Most banks are willing to work on short sales when the owners are out of job and have no ability to repay the loan. If you are employed, you don’t stand a strong chance of getting short sale approved because the bank will try to re-work the loan since you have income and the potential to repay the debt.
Short sales are more difficult for owners with multiple mortgages. While it is not impossible to get a short sale accomplished with many mortgages, the fact remains that it is MUCH EASIER to get short sale approved when you have only ONE LOAN. Multiple loans mean multiple parties. Most second mortgage holders are looking for at least 20% toward their loan…contrary to popular belief; they are not walking away with nothing unless you get foreclosed upon.
Adjustable rate mortgages are much more likely to be short sale approved. EVERYONE hates adjustable rate mortgages. They are single-handedly the worst product on the market and as they adjust, the market has not adjusted with them. With this type of loan, most banks are willing to work with you. If you are in a fixed rate loan with a low interest rate you will probably not be approved for a short sale.
Finally, short sales will most certainly affect your credit. In order to even qualify for a short sale transaction, you will need to have missed a minimum of three payments. No matter what anyone tells you, it will go on your credit as a loan settled for less than owed and your late payments will show as “LATE”. No way to get around this one.
Short sales are here for a little while longer. They will eventually run their course as inventory moves back into the market. For now, seek the advice of a real estate specialist, an accountant and an attorney. Be prepared for one of the toughest decisions you will ever face with knowledgeable advisors.