Short sales are on the rise. More and more property owners are realizing this is a viable alternative if they just can’t hold on any longer. And buyers are recognizing the ability to get a property in much better shape than a foreclosure, at a foreclosure-type price.
What is a short sale? Its simply when the proceeds of a sale are insufficient to pay back the mortgage and cover closing costs – i.e., proceeds are “short” the amount needed. In these cases, the seller’s lender has to approve any sale, as the lender is taking a loss at the time of sale.
The short sale process can take quite a bit longer than a conventional sale, due to the need for lender approval. And if there is a second mortgage from a different lender, this will extend the time period. In some cases, short sales may not happen – if the lender doesn’t want to accept the offer or if the seller doesn’t cooperate in providing information required to prove their financial hardship. But given the volume of short sale activity, the banks seem to be getting a bit more proficient at handling these, and some are moving along faster than in the past.
SHORT SALE TIPS FOR BUYERS AND SELLERS
BUYERS – Due to deeply discounted prices and very low interest rates, the next year or two will likely turn out to be the best time in your lifetime to buy property.
• Don’t be afraid of all short sales due to their uncertainty. If you see a short sale listing you like, have your realtor do a little homework to find out how many mortgages are on the property, if the seller is likely to qualify for a short sale, and if the seller has an experienced short sale attorney assisting them.
• Price an offer realistically, based on comparable properties recently sold as short sales or foreclosures. And make your first offer your best offer as there may be little opportunity for negotiating with the seller’s lender.
• If you are currently renting, attempt to work out a month-to-month arrangement with your landlord, even if you have to pay a premium for this, in order to provide timing flexibility.
• Be very patient. You and your realtor have no control over the length of time the process will take.
SELLERS – Admittedly, circumstances are pretty horrible for anyone who purchased or refinanced property in the peak years of the real estate boom. Per recent housing data, home prices in Chicago are back to 2001 levels and condo prices in particular are back to 2000 levels. If you are “underwater” (house is worth less than your mortgage) and you are struggling financially, a short sale is worth considering.
• Consult with an attorney who is experienced in short sales. There are potential legal and tax issues. Don’t just rely on friends or the internet for information – this is an important decision and you need advice from a qualified professional.
• Accept the fact that doing a short sale does not make you a bad person or a failure and that it may actually be the smart thing to do now. No one anticipated that the housing market would fall so far. And with the volume of foreclosures and short sales, home prices are not likely to rise for a very long time. This is an emotionally difficult decision, particularly if it means giving up the home you love, but it may just be time to move on.
• If you own a condo and if you are no longer paying your mortgage, make every effort to continue paying your condo assessments. If you are delinquent in paying your assessments, your condo association can get a court order to take temporary possession of your unit in order to rent it out and recoup past due monies. If this were to happen, you most likely wouldn’t be able to do the short sale.
• Cooperate with your attorney and your realtor – provide documentation when required and enable showings when requested. And allow your realtor in consultation with your attorney to mark down the price regularly, until the property sells.
• Don’t wait until just before your lender is ready to foreclose – start on the short sale way before then, even before you are delinquent with your mortgage payments.
Please feel free to contact me if you have any questions, or would like to know more about buying or selling short sales.
Bronzeville Properties LLC