Why would a bank want to do this?  Because it actually saves them money.  If a bank is forced to foreclose on a house, there are costs involved.  First, they have to pay attorneys to handle the foreclosure process.  Next, they have to pay for items like property taxes and unpaid water bills (water bills in our area are attached to the home, while electric and gas bills are tied to the homeowner).  Then there are the holding costs.  Someone has to pay the bills while the home is waiting to be sold to someone else.  Finally, there are the accounting issues that make any home that is six months behind a detriment to their books and no longer an asset.  These factors can cost the banks tens of thousands of dollars.  Some estimates say that the bank loses $50,000 – $100,000 on EACH home that they have to take to foreclosure.  So short selling is a very good option for the bank.

Why would homeowners want to short sell their home?  While the homeowner’s credit will still suffer if they sell their home as a short sale, the studies have shown that their credit recovers faster and doesn’t drop quite as dramatically as those who let their homes go to foreclosure.  In addition, the new HAFA program allows homeowners to walk away with $1,500 in their pocket, so they get something for selling their home.  Finally, all of the expenses with selling are covered by the bank.  During a typical sale, homeowners would have to be concerned with the property taxes, commissions, attorney fees, etc., but during a short sale, the bank pays all of these costs!

Why is this good for buyers?  Buyers can find “deals” in the marketplace.  In addition, if a homeowner is selling a home as a short sale, then they are more likely to keep the home in good condition (whereas some homeowners do not take care of their home if the bank forecloses on them).  Many short sales are “move-in ready” for a new buyer.  Finally, a buyer has a ‘friend’ in the transaction.  Any homeowner that is short selling their home is eager to work with buyers and generally wants to help them succeed.  Instead of negotiations taking place between home buyer and seller (and sometimes it gets to be an adversarial process), the sellers are willing to accept any offer that will get them out of their mortgage.  They want buyers to succeed!

The entire picture is not completely ‘rosy’ though.  There is paperwork involved for the seller and the process generally is extended over several months.  This is simply due to the volume of homes that are in trouble.  The larger the bank, the more loans they have to deal with, the longer it takes for them to handle the large volume.  This can make the process frustrating for some.  In addition, homeowners have to be certain that they will be absolved of all of their mortgage debt when the home is sold.  Some lenders will try to hold the sellers to the difference in cost.  The best advice is to make sure that you have a good attorney representing you when working with a short sale (realistically, it is always a good idea to have a good attorney representing you when buying or selling any home!)

If you are interested in selling your home as a ‘short sale’ or if you are looking to pick up one of these deals in the market, contact one of the professionals at Tiered Real Estate.  We will be glad to help you!

If you want to sell your home contact a real estate professional at Tiered Real Estate and we will be happy to help you.

• Hardship letter – A letter to the lender/mortgage company explaining why you need to sell for less than you owe
• Bank Statements – Copies of all recent bank statements
• Pay Stubs – Copies of all pay stubs for at least the last two months
• Tax returns – Copies of your tax returns for the last two years
• 3rd Party Authorization letter – A letter to the mortgage company where you give the lender permission to discuss your loan with your real estate agent. Be sure to give your agent’s name, company and contact info on the letter

You will need to provide your agent:

• Mortgage/Loan number
• Any contacts (names/phone numbers) that have already been given to you
• Any payoff letters that you may have received
• The date/information concerning a sheriff sale
• You may need to provide the last four digits of your social security number (which the lender will use to verify your account. Do not give anyone else these numbers and do not give more than the last four digits!)

Your agent will have to provide to your lender/mortgage company:

• Copy of your listing agreement
• Copy of the purchase contract
• Copy of a pre-approval letter for the buyer
• An Estimated Settlement statement (also called a HUD-1)

Please note that all of these documents will have to be submitted to all lenders/mortgage holders and that all documents need to be signed. For specific details, be certain to call your lender right away.

If you are facing a potential of foreclosure, do not wait to receive sheriff sale information. Let your real estate agent know immediately and do your best to sell your house. It is much better to have a short sale on your credit than a foreclosure!