Short Sale Information Facts – How To Determine If You Qualify For a Short Sale 

Short Sale Information Facts That Will Help You See The Light
These short sale information facts are designed to help you understand how a bank determines if you qualify for a short sale.

If you’ve ever driven in most neighborhoods or scanned various online real estate “For sale” ads, you have no doubt seen the, “Short Sale” ads popping up in numerous communities.

What is a Short Sale in layman’s terms please?” In a nutshell, when it comes to real estate, a short sale becomes a consideration when a homeowner owes more on a property than what the property will sell for on the open market.

Short Sale Information and Negative Equity
For example, let’s say a homeowner owns a home that appraised at $239,000.00 when he bought it five years ago. However, five years later, it’s appraising at $165,000.00. He currently owes a first mortgage of $198,000.00 and a second mortgage of $25,000.00, bringing his balance to a total of $223,000.00. That means he is upside in the house by $58,000.00. Or as it is often called, “Negative equity.” The bottom line is; he owes more on the home than it is worth.

How In The World Can That Happen?
Here’s a common scenario answer; let’s say he bought the property when credit was real loose and it was walk in the part to get financing and then immediately turn around and add a second mortgage. If you recall, five years ago, a lot of homebuyers were recipients of over inflated appraisals. They could have been buying a house that was only worth $159,500.00, but they’d get an appraisal at $239,000.00. Regrettably, people bought homes like that by the truckloads: over inflated appraisals and easy credit.

Short Sale Information and Smart Home Buyers
They never considered what would happen if the market bottomed out or if we hit an economic recession. When things took a nosedive, these negative equity homeowners were some of the first to feel the heat! Because they are upside down with the equity, they aren’t going to find any buyers on the open market. Let’s face it; in this market, no smart home buyer is going to pay full price for a property. So the expectation that they would pay more than the property is worth borders on insanity.

Don’t Let This Short Sale Information Shock You!
In these scenarios, a short sale is probably the best route for all parties involved. In a short sale, the bank or lender agrees to accept an amount less than the actual loan balance, “As payment in full!” In our above example with the $58k in negative equity, they may accept a short sale amount of $55,000.00, if that’s what the market is bearing. I can hear people screaming, “No will a bank accept an offer like that!” They will and they are IN THIS CURRENT MARKET! That’s why this short sale information is so vital.

Short Sale Information and The Cost of a Foreclosure
What most people don’t factor in is the cost of a foreclosure. On average, a foreclosure will cost a bank around $50k to $60k per property. That figure includes but is not limited to the legal fees, court fees, appraisals, clean up fees, repairs and maintenance, insurance and taxes and upkeep until the property is no longer on the books at the Bank Owned REO Department.

Based On This Short Sale Information Will The Bank Foreclose?
Let’s look at the facts and the numbers; if the bank forecloses, fixes the property up and puts it on the market for $165,000.00, serious homebuyers are going to chuckle and keeping driving by and investors are going to ROTFL Roll On The Floor Laughing! Especially if they are in the neighborhood and see “For Sale” signs like these (For Rent, FSBO, Lease With Option, Rent to Own, No Credit Check, Bank Owned, Make An Offer, Bank REO, Short Sale, etc.) all over the place. With that type of competition the bank could be forced to maintain that property for years and that’s not going to happen!

Short Sale Information and Loss Mitigation
When the situation looks bleak, the issue is usually sent to the Loss Mitigation Department to figure out which option IS GOING TO COST THEM THE LESS DAMAGE! They have accepted the fact that they are going to lose money on the deal, so their only question is, “Will we lose less on a foreclosure or on a short sale?”

Typically, a short sale is quicker and less expensive than a foreclosure. Some banks will require that you prove you can no longer afford to make the payments, but once you jump through those hoops, you should have no problem qualifying for a short sale. One last caveat; if you are upside in your home, it’s best to TAKE ACTION NOW!

Author, Joel Marks of REODr.com