10 Myths About Short Sales

A Short Sale is when a lender is willing to accept less than what is owed on the loan. Short sales continue to be very misunderstood. Here are some of the most prevalent myths regarding short sales.


Any Homeowner or Property can Qualify for a short sale.
Most lien holders require some kind of hardship. Common examples of a hardship may include illness, divorce, loss of employment, job relocation or decrease in income. The fact that a property is not worth as much as it was in 2005 is not considered a valid hardship.

Not only does the homeowner need to qualify, the property does too. For a property to qualify, it must have negative equity. Negative equity means that the home cannot be sold for more than is owed on the loan.


A Homeowner must be behind on their mortgage payments to qualify for a short sale.
While this used to be common, it is no longer the case. If a homeowner feels that for some valid reason (hardship) they will not be able to pay their mortgage soon, most lenders will consider a short sale.


It is smarter for homeowner to walk away from house instead of doing a short sale.
The reality is that a short sale will probably hurt a homeowner's credit less than a foreclosure. Estimates say that FICO credit scores usually are lowered by short sales by 100-250 points while a foreclosure can drop scores by 200-350 points. In addition, homeowners with foreclosure on their record often are unable to purchase another property for 7 years while a homeowner choosing a short sale may do so in as little as 2 years.


There is not enough time before the foreclosure to attempt a short sale.
Some homeowners give up once the date for the foreclosure is announced. But most lenders will extend the date of foreclosure if there is a pending contract on the property. When a homeowner lists their property for sale, once they get an offer, the lender will often extend the date of foreclosure sometimes by a few weeks or even a month.


Banks would prefer to foreclose than do a short sale.
This is not true. They often lose about 30% more on a foreclosure than a short sale. Once the property has been foreclosed on, the bank has to deal with a vacant property that is subject to vandalism and deterioration.


Short Sales rarely get approved.
This is not true any more. When we first started to see short sales increasing, many of them never got approved and went into foreclosure. However, now banks have streamlined their processes and more and more are getting approved. In addition, the listing agent plays a huge part in whether or not a short sale is approved. The more experienced the agent is in the area of short sales, the more likely, it will be approved. Finding an agent experienced in short sales is vital.


Short Sales cannot be done when there is more than one loan on a property.
They can be done with more than one loan on the property although the process gets more difficult. The homeowner must negotiate with the second lender to take a small amount such as $2,000 on a $50,000 loan. Since this loan is subordinate to the first mortgage, if the second lender refuses, they may ultimately get nothing.


Short sales are always a good deal for a buyer.
Often, listing agents may price a short sale lower so that they will get more activity on the property and multiple offers. However, the bank is going to want proof that the property is worth the price the buyer offers. They will want comparables and may counter offer so that in the end, the buyer is getting a property that is at market value.


Short sales are not worth the effort.
There is no question that short sales can be frustrating for buyers, sellers and agents. They take months (I have seen up to 10 months) to close, and sometimes, the property is foreclosed on before an agreement can be made. However, sometimes short sales can be an excellent option for a stressed-out homeowner. In addition, buyers can find some wonderful bargains if they are willing to wait out a short sale property.


Probably the BIGGEST myth of all is that ANY real estate licensee can assist a homeowner with a short sale.
Short sales are very complicated and require specialized knowledge and persistence. Diamondback Realty has systematized procedures for ensuring short sales are done correctly.

If you need help with a short sale, I can help.

If you need help with a short sale, please contact us.

- Courtesy of Diamondback Realty, www.diamondbackrealty.com


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