The Short Sale Process Pro's and Con's
Posted by Paula Smith on Tuesday, March 22nd, 2011 at 9:14pm.A question that is being asked frequently in the St George real estate market is, “What is a short sale?” Short sales used to be an infrequent type of real estate transaction, but with current economic conditions here in St. George, more and more homeowners are opting for this type of sale, and banks have begun to offer incentives to sellers to engage in a short sale.
A short sale occurs when a homeowner elects to sell their home for less than what is owed to the mortgage holder. There are pro’s and con’s for both the homeowner and the bank in a short sale, let's take a look from both perspectives.
A Short Sale Perspective From The Bank
There are several reasons why a mortgage holder, or bank, would agree to accept less than what is owed. A bank may benefit from a short sale for one or more of the following reasons:
- is more cost effective for the bank (or banks) to accept less because it would cost more to foreclose
- banks do not want to own property, holding costs and liability can become expensive
- banks are in the business of making money, not selling real estate
In a St. George short sale transaction, the bank (or banks) involved must approve any offer that is received by the homeowner. The primary bank, the one that holds the first mortgage, will review the offer received to determine whether enough money will be made in order to make it worth agreeing to the short sale versus moving forward with foreclosure procedures. Each situation is different and no two properties will be the same. The process may take a considerable amount of time as each bank has a lot of “red tape” the offer must go through.
A Short Sale Perspective From The Homeowner
There are several reasons a homeowner may opt for a short sale on their home. A homeowner may benefit from a short sale for one or more of the following reasons:
- Their credit score suffers less from a short sale than a foreclosure
- The owner can remain in the home until an offer comes in that the bank accepts
- Their payments may be suspended depending on the bank's policy
To initiate a short sale, the homeowner must first contact their bank to discuss the option and learn the process the bank requires. Recently, financial institutions have been reaching out to homeowners and actually pre-screening them to qualify them for a more streamlined short sale. Some banks have even taken a "cash for keys" type of approach and offering monetary compensation to sellers if they will agree to a short sale. General requirements are to provide a hardship letter outlining why they homeowner can no longer keep up with monthly mortgage payments, as well as providing earningsdocumentation. This should be done immediately, before the bank begins foreclosure proceedings if there have already been late payments. The bank will inform the homeowner whether or not they “may” accept a short sale, which will be dependent on any offers that are received. Often, the bank will require an offer to be received before moving ahead with the process. This can be cumbersome as a listing agent will often price the home extremely "attractively" in an effort to generate multiple offers to move the process forward. This price may not be anywhere close to what the bank will actually accept.
The "Con" In Doing A Short Sale
There are a few downsides to short sales. For the bank, they forgive a portion of the mortgage in exchange for receiving some of the payment in full (they lose money). For the homeowner, it means possible credit history hits, as well as being a very lengthy, stressful process.
In the end, a short sale can be a beneficial alternative for distressed homeowners and banks alike. It provides the homeowner with a way to get out from under a mortgage that they can no longer support, and it provides the bank with an alternative to a costly foreclosure. It is a good idea for homeowners to consult a real estate professional as well as seek advice from a tax specialist to learn if there are tax consequences to a short sale. The downside to a buyer is the process can become extremely lengthy and the short sale may never be approved by the lender. This creates frustration for all parties involved.
If you are at risk for losing your home, consider all of your options. Contact Paula Smith for additonal Short Sale informtion. To find all MLS listed Short Sale homes in St George or surrounding areas, visit my "St George Short Sales" page.
Thank you for reading, and share your thoughts below in the comment section. If you want other reports, just ask! Paula Smith Re/Max First Realty www.StGeorgeUTproperty.com
"Dedicated to providing an unprecedented level of service and exceed Client expectations" Contact Paula Smith today if I can be of assistance.
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