There is a lot being written and even more being said about the current Real Estate Market. Some of what you hear is true, a lot of what you hear is not, especially regarding short sales. If you are interested in listing your home as a short sale, there are a lot of things you're going to hear, but you need to know the facts.
There are some great opportunities in the home market today (especially if you're buyer); however, the market is being driven primarily by short sales. And with short sales being a relatively new phenomenon as a market driver, there are a lot of unknowns and just plain myths circulating in real estate papers, blogs and desks. To take advantage of the market as a seller, or a buyer, it's necessary to understand short sales and be able to separate fact from myth.
Below are several of the most common myths associated with listing your home as a short sale or buying a short sale property.
Myth: The Bank Would Rather Foreclose than approve a Short Sale
Not true. At all. The reality is that foreclosing is the last thing banks want to do. Why? Because then they’ll have to pay the costs of foreclosure and they will only be able to sell it at the current market rates (probably much less than the current mortgage).
If you cannot make your payments, the best thing for them is to except the short sale at market rates. Banks, investors and even the federal government have all publicly stated that if a person is qualified for a short sale, the deal needs to be considered. Good for sellers, good for buyers.
Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure.
Myth: You Must Be Behind on Your Mortgage to Negotiate a Short Sale
False. Remember: the definition of a short sale is a negotiation between you and a lender. In the past, this was a common precondition but it is no longer the case. Most lenders today don’t require you to be behind on your mortgage before you reach out to negotiate a short sale.
FYI: The qualifications for a short sale include:
- Financial Hardship - There is a situation causing you to have trouble affording your mortgage.
- Monthly Income Shortfall - “You have more monthly expenses than monthly income.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency - The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
If you meet these three requirements listed above and believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options. Do not wait until you are in the foreclosure process before you act.
Myth: There is Not Enough Time to Negotiate a Short Sale before Foreclosure
This is probably the #1 myth that hurts homeowners the most. Many do not realize that foreclosure is a process, sometimes a lengthy one. Generally there is time to make decisions that may result in better outcomes especially if you realize you are getting into trouble and act soon.
Did you know the foreclosing lender can stall a foreclosure up to the final day of the process? It's true. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell and almost all lenders will stall a foreclosure with a legitimate contract. Again: they do not want to pay for a foreclosure. For real estate professionals who understand foreclosures and short sales, there is time available until the foreclosure process is complete.
Myth: Listing My Home as a Short Sale is an Embarrassment
Wrong. Recent estimates show about half of U.S. sales will be short sales or foreclosures. You are not alone. In fact, most people who have purchased or refinanced their home in the last five years, unless they had a very large amount of equity, are now underwater. Odds are, your situation is dictated by the market and the economy. You are to be congratulated for admitting you need help, taking action and finding a professional who can work with you to solve the problem.
Myth: Short Sales are Impossible and Never Get Approved
Although sometimes this may seem like the case (ask any real estate professional dealing with short sales) this is not true. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not.
While there are no guarantees in any transaction, more and more short sales are being approved regularly. Banks have a lot of inventory to move and they are getting better at moving it.
Myth: Banks are Waiting on a Bailout and Not Accepting Short Sales
You may have heard this, but the reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. It's preposterous to believe they would deny a short sale in hopes that some future legislation would pass and pay them for losses. Not going to happen.
Today, more banks are aggressively pursuing short sales and working with agents who understand how to process them. Freddie Mac recently hosted national training Webinar for real estate agents where they expressly stated the organizational goal of “eliminating distressed assets through modification or short sale.” I.e.: they are doing whatever they can do expedite the process.
Myth: Buyers are Not Interested in Short Sale Properties
Actually, the opposite is true. Short sales are more difficult for everyone involved. But, the most important thing for most buyers today is value. Today many buyers are targeting foreclosures and short sales because that's where the deals are and that's where most offers are made. For buyers, short sales and foreclosures have become synonymous with the term “good deals” and with good reason. They are. Listing with an experienced agent who is educated in the short sale process will provide you with a great chance of quickly seeing a contract on your property.
Now that you know some of the facts, it's time to get moving. If you are looking for help buying or selling your home you should contact a local real estate professional today to answer any further questions and help get the process rolling.
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