Today, many homeowners are in difficult financial situations. They’re behind on payments, owe more money on their home than it is worth or are even facing foreclosure.
With the economy being very unstable, declining property and home values, and unemployment rates high, understanding the real estate market is like entering the wild, wild west.
One option in addressing a financial dilemma is the short sale process. Basically, the homeowner opts to conduct a short sale when s/he owes more on the home than it’s worth and must sell. Reasons for selling could be any type of hardship such as job loss, transfer or change, divorce, illness or simply no longer being able to afford the home.
Accentuate the Positive
The pros of a short sale are that you can try to sell your home at today’s market value, regardless of what you owe, and ask the bank to consider taking its loss now — versus going through the foreclosure process.
Banks are being encouraged by the federal government to try this option first, and at some point it may even become a mandatory step before lenders can file a foreclosure; times have changed, and banks are becoming accustomed to conducting short sales, so they’re often very receptive.
The days of waiting many months for an approval are over and most of the large banks, such as Bank of America and GMAC, have departments and staff in place to aid listing agents in completing the short sale in a timely matter. If you are already in foreclosure, an offer on your home can even stop the process.
In most cases, if you are shorting your principal residence, there are no tax consequences. Your credit will suffer, but that will not be as devastating as a foreclosure; should a foreclosure occur, you may not be able to repurchase a home for up to 10 years. With a short sale, you may be able to buy again in just two to three years.
Also, in most cases, a deficiency judgment can be avoided in a short sale versus a foreclosure.
On the Other Hand
The downside of a short sale is that you have to go through the process of selling and showing your home, and thus have to make it appealing and available for potential buyers.
This can be difficult for some sellers who are going through a difficult time, but it can be well worth it. One requirement is that the seller cannot receive any proceeds from the sale. Therefore, any improvements or money invested into your home will be lost, and you will have to move.
Banks do not allow you to rent back from the new owner. You also will be required to complete a large amount of paperwork, such as a hardship letter (an explanation for why you have to sell) and financial worksheets, and will have to provide bank records and tax returns if available. Also, your credit will suffer, but it will anyway if you enter into foreclosure.
Mull It Over
If this sounds like a good solution for you, contact an experienced short sale agent to complete the transaction. That person will collect all your documents at once and handle all the negotiations with the bank. A short sale agent will be educated concerning the latest legislation and trends and get you to closing.
Everyone has a friend or relative who is a real estate agent, but don’t rely on those people to handle these types of transactions; however, one of them can perhaps earn a referral fee from an experienced short sale agent if you insist on using him or her to represent you.
Also, consult with an accountant and attorney to review your individual case and determine if this is best for you and your family. Some banks are now looking at short sales even if you are keeping up with your payments.
And remember, as trying as the process is, there is life after a short sale —and peace of mind that you handled a difficult situation responsibly.
Rebecca Giacobba is a broker with Capital Realty in Annapolis. She can be contacted at 410-320-4868 and firstname.lastname@example.org.