Short Sale: What Distressed Sellers Need To Know

Short sales are often thought to be quick, last-ditch efforts by homeowners to avoid foreclosure by a bank or creditor which would then adversely impact their long-term credit. Unfortunately, many people reading this blog may be familiar with the term due to the process’ fame during the 2008 financial crisis where many homeowners had to avail themselves of the short sale – some of which happened quickly and led to the impression by some that these are quick, automatic sales. However, the truth is a little more complicated and there are a few factors which influence every home sale whether you’re the buyer or seller.

Homeowners’ willingness to engage in a short sale

The first step in this process is the homeowner deciding to take action to help rescue their financial situation. If you polled homeowners who engaged in short sales, you would likely find that many were unwilling to consider a short sale the first time they ran into financial trouble. However, whether it be medical bills, loss of income, or another situation many have had to consider this mechanism in order to avoid a foreclosure of their home. In theory, both parties benefit as a bank or creditor will receive something for the asset they provided a loan for and the homeowner avoids a very difficult financial situation that sometimes hobbles people financially for life.

Lenders’ approval of a short sale 

Next, the bank or creditor has to approve the application of a homeowner for a short sale of the property. This often involves proof of financial hardship through a variety of ways such as tax and bank statements, pay stubs, bills, and other crucial pieces of financial information that will inform the bank’s decision whether or not to grant it. Following the submission of all necessary documents, the bank will decide whether or not to approve the application and grant the short sale.

Determining the value of the property and negotiating its sale price

If the bank approves the short sale application, then there will be an appraisal ordered or a local real estate agent will be hired to provide a brokers price opinion (BPO) in order for the bank or creditor to determine a sale price and list it. Following the use of either or both of those methods, the bank or creditor will likely list the property for the highest amount of money possible in order to recoup its investment. As a buyer, you can put yourself in an advantageous position by pairing up with a partner who has short sale experience and also offering to pay cash for the home. While short sale timelines are often abbreviated, they can still take months and any potential buyer must be willing to negotiate in order to get a deal that makes sense.

Closing

Short sale closings are very similar to closings for any other sale except for the back-end paperwork that may be involved. One notable requirement may be that the buyer may need to ensure the previous homeowner vacates the property although that can be a valuable tool in negotiating with a creditor. As with any transaction, each state and municipality may have unique rules which govern the transaction which should be reviewed or consulted before moving forward with any legally binding agreement.

Short sales can be beneficial for all involved and we have significant experience negotiating short sales. If you think a short sale is right for you, give us a call at (718) 407-0082 or send us an email at [email protected] to ensure prompt and professional results.