We have been hearing the term “Short Sale” in the news a lot lately but do you really know what a Short Sale is and its benefits? A Short Sale can be very advantageous to the home owner going into foreclosure, the bank and the new home owner purchasing the property. Short sales are a win for everybody involved and the best solution most of the time. With more and more people not able to refinance or falling out of chapter 13 bankruptcy’s it looks like the only option.
The home owner going into foreclosure has several advantaged by negotiating a short sale:
1. They can salvage their credit. A short sale does adversely affect a person’s credit report, though the negative impact is typically less than a foreclosure. The home owner will still have some negatives for being behind on their payments and a short sale will be reported to the credit bureaus but that is substantially better then letting the property go all the way to foreclosure. Plus the home owner will be eligible, under Fannie Mae guidelines, to buy another home in 2 years instead of 5 to 7 years. If your credit report does not reflect a 60-day+ late pay, under Fannie Mae guidelines, you will be eligible to buy another home immediately.
2. Will be easier to get future credit. If a Short Sale is done it will pay off in the future when the homeowner needs to borrow money for a car, house.etc.. The new lender will be more willing to make the loan if they see that they sold the home on a short sale than burying their head in the sand and doing nothing at all.
3. They can normally avoid a deficiency judgment. This if the bank forecloses and takes back the property, sells it for less that what was originally owed to them by the homeowner, they can sue for the difference. This can still happen even if a short sale deal is made but a least the home owner has a chance to negotiate that, witch will fall on the Realtor representing the homeowner in foreclosure. A Realtor that is experience at his is a must.
The Bank:
1. Banks have to hold capital reserves for their loans, sometimes 4-8 times the amount. That is huge, the bank can not lend that money out and earn interest on it. If the loan on the house is in default the bank needs to recoup their losses ASAP, so they can lend back out the money and earn a return. The banks don’t want the property, they want their money.
2. The Bank will receive more on a short sale than foreclosing. Its all a numbers game to the bank, if the agent or negotiator representing the homeowner can justify that it will be more cost effective to take a discount on the loan now then they will likely accept a short sale. Convincing the bank will largely fall on the Realtor representing the homeowner or negotiating personnel. If the Realtor is unfamiliar with the process it is in the best interest of everyone involved to team up with an expert.
3. Getting the nonperforming loan off their books will greatly increase the amount of capital the bank can borrow from it’s investors. Having to many nonperforming loans on their books makes investors nervous and they can cut off or reduce the banks capital supply.
New Homeowner:
1. They will be getting a discounted house. By purchasing the property at a discounted price they can keep insurance cost down and possibly get the property taxes reduced. Property values are way down, that means more than likely that the county is over charging for property taxes. Its not to difficult to get them reduced.
2. Income tax credit. By purchase while the government is offering the income tax credit they can take advantage of FREE money from the government.
Short sales are an unfortunate event going on in our world today. Regrettably it’s reality and the aftermath of many things gone wrong in our banking industry as a hole. Short sales are one solution for the people tied up in this mess to start over in life and move forward.
As time goes buy and more jobs are lost, it’s our family and friends facing this crisis. Focusing on a positive solution and not the problem are a must for the people involved.
