So, what exactly is a short sale? Put simply, a short sale is the sale of a home in which the amount owed to the lender(s) is more than the amount that the home can be sold for. Instead of the home owner having to bring in money to complete the sale, the sale is completed through negotiations with the existing lender(s) and the lender(s) agree to accept less than the full amount owed to satisfy the debt and allow it to be paid off “short.”
Put even more simply, a short sale is a real estate transaction that requires an approval from the lender – period. It’s not some complicated legal process that requires paying an attorney. As a matter of fact, watch out for that trick!!
Now don’t get me wrong. Short sales are most definitely a different animal than a regular real estate transaction because once you stop making your mortgage payments, the clock starts ticking and the hangman starts preparing his noose.
You’ll get one shot to do a successful short sale. If your agent is inexperienced at short sales, makes mistakes, gives up, slacks off, drops the ball, or simply doesn’t know how to negotiate with banks, you’ll wind up being foreclosed on and believe me, you do not want to go through a foreclosure.
A foreclosure will devastate your credit. Your credit score can be lowered by as much as 300-400 points (or more) and you’ll be hounded day and night by your lender. Even worse, you’ll have difficulty getting credit cards, auto loans or even renting a home or an apartment for the next 7 years.
Your home will be repossessed by the bank and the bank will sell your home, either at auction, or more likely through a real estate agent, with a large sign out front that says “Bank Foreclosure”.
Here’s something important you need to know about short sales, depending on whether the loan on your home is a “purchase money” loan or whether you did a “cash out” refinance after your purchase, you either have a “non recourse” or a “recourse” loan. This makes a BIG difference as to whether or not your lender can go after you to repay your debt, even after your home has been foreclosed on.
A non-recourse loan is…
A loan agreement under which the collateral securing a loan is the ultimate source of repayment, and the lender cannot hold the borrower personally liable in the event of a default. The lender can seize (and sell) the collateral but cannot seize non-pledged asset or property.
A recourse loan is…
A loan agreement under which a borrower gives an undertaking to repay a debt even if the funded asset (acquired with the loan proceeds) cannot be liquidated to cover the loan amount. In case of a default, the lender can seize and sell the funded asset as well as the borrower’s un-pledged assets or properties.
That recourse loan sounds scary huh? They can be. The great news is, a licensed real estate professional who specialized in foreclosure prevention can help you either way but the steps are different. Now, if you want to see really scary, just ask the next real estate agent you meet claiming to be a short sale expert if he or she can explain the difference between the two.
So, I applaud you now for doing your home work and not simply trusting this process to the first of many typical real estate agents who are likely to come along promising help.
While I’m at it, you should also be wary of the many unscrupulous companies operating now that actually encourage you to go through foreclosure so you can live in your home a few more months without paying your mortgage. These companies prey on people who are vulnerable and unaware of the foreclosure and mortgage laws.
They even charge you a hefty fee for the privilege of getting foreclosed on! This is financial suicide, and it is totally unnecessary because…
Your lender does not want to foreclose on your home.
It’s true. They would much rather have you stay in your home and continue making your payments, or have you sell it and get it off their books, even if it requires them taking a financial loss. Remember, banks are in the lending business, not the real estate business, which brings me to my next point:
It makes absolutely zero difference whether your lender is Indymac, Wells Fargo, Chase, Countrywide / Bank of America, Downey Savings, CITI, Chevy Chase, Washington Mutual, Wachovia, World Savings, First Franklin, Flagstar, GMAC, Greenpoint, Homecomings, HSBC, Irwin, Novastar, Option One, Aurora, Deutsche Bank…
You need to hire a licensed real estate professional who have worked with them all and they all work the same — if you submit a sensible offer and a clean package and have the systems and resources in place to consistently and continuously follow up on the file, it will get accepted and your home will be sold “short.” You’ll pay nothing. You’ll owe nothing. You’ll avoid having a foreclosure on your credit report and you’ll survive to fight another day!