Saturday, April 18, 2009

What Are Short-Sales

Today's topic is one of great confusion. It it has only gotten more confusing in the past few weeks since the latest Stimulus Package was passed.

By definition, a "short sale" is caused by a seller need to sell a home for less than he/she owes on the mortgage. Sounds pretty cut and dry. Yet it isn't.

GROUP 1: If you would be looking to sell and you are aware that you can't get what you paid for the house, you are a rare "short sale" and may not be defined as a short sale to boot. To be a short sale, you must owe more than the house is worth and not have the assets/job necessary to continue to make house payments. Yet, the key party in this definition will be the bank or mortgage servicer that is receiving your mortgage payments.

Group 2: The reason they will be a determining factor of this process is another group of possible "short sales" that the bank and the government(more later) aren't willing to help. These are the home owners that used the house to take two trips to Tahiti, buy two SUVs and 3 carat diamond with the "equity of their house" only to find out the "equity" has vaporized. Though being a Realtor, I can't say no one with this type of situation will be termed a "short sale"(Foreclosure would be more likely), but as I understand it, they will have great difficulty to get a bank or the government support for the bank to help with the loan.

Thus Group 1 must provide bank statements, credit card statements, past income filings and the like to a bank if seeking to modify their loan or to establish the need to sell short. The bank want to ensure the seller A) doesn't have the assest and job to continue to pay the mortgage or B) hasn't spent money "foolishly" allowing the house to be the "bank", thus spending their way into the crisis.

On top of it, due to the latest stimulus package, the Federal Govt has established a process to ensure that borrowers that are behind(but not due to excessive life style) can modify the loan to help a homeowner stay in their house or sell it short within in specific guidelines. As these guidelines vary among the various loan types, there isn't space here to discuss each program. Yet know that an "approved" short sale has involved detailed information from the seller to the bank describing the hardship causing the sale and why it should be defined as a short sale, the financial detail noted above and an appraisal for an "as is" sale to determine the selling price for the home.

Thus the Short Sale isn't mysterious!! It just has a lot of twist and turns that make any seller or buyer want to consult a Realtor to help them throught this ardous process.

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