The question, what is a short sale?, comes up often these days. Prior to 2007, the term short sale was unknown by many. Today is a different animal. Thus, we are going to give the readers of UrbanConnectionRealty.com a brief definition of the term Short Sale and an example of a typical short sale transaction.
What is a Short Sale:
A short sale is done when a home owner owes more to his mortgage lender than his/her home is worth. The goal is to get the lender to accept the proceeds of a sale as satisfaction of the loan. The proceeds of the sale will be less than the outstanding balance of the loan so the lender (actually the investor backing the loan) has to approve the sale as they will be taking a loss.
Below is a brief outline for a short sale transaction we were hired to help execute.
The home owner purchased their home in 2006 for $325,900. They had put 10% down and a taken a second loan to make the down payment equal a total of 20% down. At the time we talked to the home owners, they owned about $290,000 on the first loan and $19,000 on the second for a total of $309,000.
We did a property value analysis and found the the home was worth about $182,000. Thus, our clients were upside down by approximately $127,000. Yikes. We hated to be the bearers of this news, yet it felt good knowing we had the knowledge and partners to help them negotiate a short sale.
Speaking of partners, we work with a number of professionals who help keep our clients well informed and safe. We advised our clients to speak with an attorney who specializes in short sales and a short sale knowledgeable CPA or tax attorney. Smartly, the homeowners took our advice and sought advice and decided to move forward with a short sale verses letting the home go to foreclosure. They also chose to have the short sale attorney help them prepare the necessary documents and negotiate the short sale with their lender.
We, the Urban Team, marketed the home and quickly found a qualified buyer who offered $178,000 and understood that short sales can take months to happen. The bottom line is the attorney did a great job negotiating with the home owners lender and we were able to complete the sale in a bit under 50 days.
This is a very simple overview and does not include many details and complexities involved in the short sale process. We have other articles that address many of the questions home owners ask us. The link below will take you to the short sale section of UrbanConnectionRealty.com.