Understanding Short Sales

Florida Regional Realty has successfully guided many sellers and buyers through the short sale procedure. It's imperative to follow the correct sequence of events when buying or selling a short sale. Not all real estate professionals are well versed in this process. An effective agent will be able to explain the intricacies of the short sale transaction.

When foreclosure rates hit record levels, sellers turned to short sales as a way to avoid foreclosure. Even after the market normalized, short sales are still a viable option for many homeowners faced with the prospect of falling far enough behind on their mortgage payments that the bank is threatening foreclosure. So, how does it work? In a short sale, the seller arranges with their mortgage lender to accept a price that's less than the amount they owe on the property. As part of this arrangement, the lender typically agrees to forgive the rest of the loan. As a result, the seller doesn't have to go though a foreclosure, the buyer picks up a property at a discount, and the lender avoids taking on the burden of unloading the property.

Sounds good right? Well, sellers need to know that a short sale may damage their credit, though probably not as much as a foreclosure. Also, lenders generally will only agree to a short sale if the seller is many payments behind, has received a default notice, or can prove why he's a candidate for a short sale (loss of income, moved out of the area, etc.). Buyers may get a great property at a discount, but they also will need to go through some extra paperwork too. Not to mention, they also need to be prepared to roll up their sleeves if that new property needs fixing up.

Whether you’re in the market for a new home or considering selling your existing home, chances are you’ve heard of a short sale. Short sales are becoming increasingly common in parts of the country where home values have dropped substantially. Short sales can benefit those sellers facing the prospect of a foreclosure as well as buyers looking for a deal on their next place to live. However, short sales can also be tricky, so understanding how they work is essential.

In a short sale, a seller facing the threat of foreclosure enters into an agreement with their mortgage lender to accept a price for the property that’s less than the amount they actually owe on it. The seller makes no profit on the sale but avoids many of the problems that would come from a foreclosure.

With a short sale, sellers avoid having to go through a lengthy foreclosure process and prevent the impact of a foreclosure on their credit score. In a short sale, the seller and the lender work together to determine the details of the agreement, but typically sellers who complete a short sale also avoid owing the balance of the loan. The biggest advantage to buyers is clearly the prospect of moving into a new property at a great discount. Moreover, buyers may find that short sales have an additional benefit over foreclosures too, since unlike a foreclosure, there’s not much of a risk that the buyer will need to take action to remove the seller from the property. Of course, mortgage lenders can benefit as well. With a short sale, lenders don’t have to worry about getting involved in a long foreclosure process. More than anything else, lenders want their money back, and they generally want to steer clear of taking responsibility for selling a home. So, a short sale can actually be good for them.

Sellers considering a short sale must understand a few important things. First, not all lenders will offer to relieve the seller of the responsibility of paying off the balance of the loan. So, sellers should get a solid commitment from lenders that states this is part of the deal. Also, though the seller is avoiding a foreclosure, even a short sale may affect their credit score to some extent. So, sellers should have their real estate professional negotiate this issue with their lender to figure out how the process will be reported to the credit agencies. Most importantly, not all sellers even qualify for entering into a short sale. So, if you’re a seller thinking about a short sale, you’ll want to talk to your real estate professional about the options available. Buyers need to be wary too, since getting a deal on a short sale is not as easy as it may sound. In fact, there are some extra steps that buyers need to take when entering into a short sale, which can require doing some additional homework and assembling the right paperwork. Remember, in Florida all real estate commissions are paid for by the seller (don't worry short sellers - the bank pays all real estate commissions, not you), so if you’re a buyer considering entering into a short sale, it makes sense to consult a real estate professional who can answer your questions and help you navigate the complicated process.

Florida Law requires the following disclosure be displayed when any advertising of short sales services is done by a licensed real estate agent.

MARS Disclosure for General Commercial Communications

IMPORTANT NOTICE: Florida Regional Realty Corp. is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.

General Commercial Communication: means any written or oral statement, illustration, or depiction, whether in English or any other language, that is designed to effect a sale or create interest in purchasing any service, plan, or program, whether it appears on or in a label, package, package insert, radio, television, cable television, brochure, newspaper, magazine, pamphlet, leaflet, circular, mailer, book insert, free standing insert, letter, catalogue, poster, chart, billboard, public transit card, point of purchase display, film, slide, audio program transmitted over a telephone system, telemarketing script, onhold script, upsell script, training materials provided to telemarketing firms, programlength commercial (“infomercial”), the Internet, cellular network, or any other medium. Promotional materials and items and Web pages are included in the term “commercial communication.”