Simple Guide to Short Sales
What is a Short Sale?
Recently, the "Short Sale" has become a mainstream way of buying and selling real estate throughout the Eugene area and beyond. Simply put, a Short Sale is a real estate transaction that is put together by the buyer and seller and presented, for approval, to the seller's mortgage holder. Due to financial hardship, the seller is unable to make payments to that lender. The lender is entitled to approve this type of sale since they may potentially suffer a financial loss.
Additionally, for a Short Sale to take place, the seller's primary residence must have fallen in value to less than the amount the seller currently owes to the lender. This is also referred to as being "upside down" on a mortgage. The negotiated selling price of the property will reflect that lower value.
How it WorksA Short Sale transaction is unique and involved in that the seller and buyer, with assistance from their brokers, actually collaborate on a Proposal that the buyer will present to the seller's financial institution. Generally, the lender is not contacted until the proposal is complete. Loss Mitigation and Resource Recovery Departments currently receive more proposals than they can handle. Those with insufficient information or inadequate offers are ignored. Here's where the knowledge of an experienced real estate broker becomes absolutely necessary.
Fair Market ValueThe property can be a "bargain", and the proposal might request that the lender consider a price that's lower than what the seller originally paid. However, in order to satisfy the seller's lender, the current asking price should fall within the range of the property's "fair market value" . Fair Market Value is determined using several factors. Negotiating a property's current value can include comparable neighborhood sales, knowledge of the property's marketing history, appraised value, and thorough knowledge of any maintenance and/or structural issues.
As-Is PropertyA Short Sale is an "as-is" purchase. This relieves the seller of any additional expense that could become apparent through inspections. If renovations or repairs are necessary they should be fully documented. A capable buyer may find these issues are beneficial in price negotiations with the seller's lender. A buyer who must depend on hired renovators should carefully consider the property's condition.
Is a Short Sale Right for You?The experience of a broker comes into play in determining whether a particular Short Sale should be pursued. A seller who owns multiple properties may not be eligible for this type of sale. Buyers interested in a quick sale, may want to concentrate effort on "approved" (price is already set by the lender) Short Sales. A singly financed property will be more easily negotiated than one with multiple lien holders or equity lines of credit. A broker can also determine whether the amount of equity a seller has in the property will become fruitless or advantageous in working with the lender. Completing a thorough title search is necessary.
Lenders Make the Final Call
Every financial institution has an independent philosophy of what constitutes a reasonable Short Sale offer. Knowledgeable brokers will assist the seller and buyer in determining down payment, price, and whether a cash offer is beneficial to their proposal.
The buyer's broker will need to be especially attuned to the time restraints of arranging financing. Escrow closing dates, as short as 20 days, are determined by the lender, and are rarely extended. Because of this, all financing must be in place, early on, in negotiations. Both parties must be ready to move when the seller's lender approves the Short Sale.
Generally, the lender forgives the seller for the difference between the mortgage owed and the selling price, and assumes the loss. The advantage to the lender comes in recouping funds from that sale and thereby making them available for other lending opportunities. Also, the lender avoids Foreclosure and the subsequent responsibility for maintenance and sale of the property. But, it is the responsibility of the seller and buyer to convince the lender that their Short Sale Proposal is a win-win situation for all parties involved.
The seller should make sure their broker is familiar with the Mortgage Forgiveness Debt Relief Act of 2007 that will most likely relieve the seller from taxes due on the difference between a property's sold price and amount owed.
How Eugene's Alternative Realtors Can Help You
A Short Sale, while do-able, is a complex real estate transaction. We of Eugene's Alternative Realtors are sensitive to the needs of sellers and buyers in this unpredictable, evolving real estate format. We take pride in having researched and educated ourselves so that we provide the best guidance and creative opportunities available to Short Sale home sellers and buyers in Lane County.
We offer no-obligation, no-pressure advice. To speak with a broker about Short Sales, We invite you to schedule a consultation using the form below.
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