With literally millions of home owners currently owing more on their mortgages than their homes are worth and with an estimated half of them in default (behind) on their payments what can they do if they either do not qualify for a loan modification or simply can no longer stay in their current home? They can do a short sale. Make no mistake about it; these are dire circumstances for these homeowners as they are most likely going to lose their home to foreclosure if they do not pursue the short sale option.
A short sale is when the homeowner sells their home for the current market value which falls “short” of being able to pay off the mortgage owed on the home… and the bank agrees to accept that amount as payment in full. It has taken several years for the banking industry to realize that working with these homeowners to help them eliminate their debt via a short sale is in their own best interest both financially and in terms of improving their public image. After all, anything is better than the image of the evil, villainous banksters evicting women and children from their homes after foreclosing upon them! Short sales are now considered the preferred default solution by both homeowners and the banking industry.
To obtain a short sale in California you must first exhaust all possibility or waive your option to a loan modification. You must use a licensed real estate broker or an agent working for a broker. We will learn how to pick the right broker/agent in future articles here at CV Weekly. Together with your broker you will provide your lender with the necessary documentation to move forward with your short sale. Included in this documentation you must provide a hardship letter demonstrating your circumstances that led you to the short sale option (loss of job, divorce, etc.), but most lenders are much more lenient these days regarding this requirement. The home is then listed at the “fair market value” as determined by your broker and in some cases with the cooperation of your lender. When the lender cooperates in the valuation process this is considered a “pre-approved” short sale and allows for a quicker sale process. You remain in your home as the property is marketed and you, as the seller, accept an offer and contract with a buyer. Your sale is subject to the bank’s approval. How long does it take to get the bank’s approval? We have all heard horror stories of this process taking 6 months to a year and then not getting the bank’s approval and losing the deal and then the house to foreclosure. I assure you, many of those stories are true! But while every short sale is different, most short sales are now accomplished within 90-120 days. You can accomplish a short sale even if you have a second loan or Home Equity Line of Credit on your home. It just takes a little more work and two bank approvals instead of one.
Next week we will learn more about short sales, incentive programs, deficiency judgments, and possible tax consequences.
Bruce Cathcart is the Broker/Co-Owner of La Quinta Palms Realty, “The Friendly Professionals” and can be reached by email at laquintapalms@dc.rr.com or visit his website at www.laquintapalmsrealty.com.
