Over the past few years, difficult economic times have changed the face of the real estate market. Oftentimes, after a reduction in income or a job loss, homeowners may find themselves in a situation where they can no longer afford to make their mortgage payments. Due to the recent decline in home values, some homeowners may find their mortgage exceeds the current market value of the home. Rather than face foreclosure, a possible solution is what is known as a short sale.
What is a short sale?
A short sale is the sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. If a borrower can no longer pay the mortgage loan on his or her property, the lender may decide that selling the property at a moderate loss is better than foreclosing. Both borrower and lender must consent to the short sale process, because it allows them to avoid foreclosure, which involves significant fees for the bank, and poor credit outcomes for the borrower.
How is the home value in a short sale determined?
Clearly, in any transaction, there is a buyer and a seller. Keep in mind however, that in a short sale, there are three parties – the buyer, the seller, and the seller's lender – each with an opinion as to market value. In addition, if the buyer is seeking financing to purchase the home, then the buyer's lender will have an opinion as well.
When selling a property as a short sale, keep these factors in mind:
Loss Mitigation Certification
You need an experienced real estate agent, preferably one who is Loss Mitigation Certified and has listed short sale homes before to determine the property's fair market value. The agent will determine the list price based on a complex analysis of recently sold properties in the area, the specifics of your home, and what the market seems to bear based on your home's uniqueness.
BPO
Your lender will want to make sure that you are selling the property at fair market value as well. Your lender will also conduct their own appraisal of your property, known as a Broker Price Opinion (or BPO).
Arm's Length Transaction
It is important to know that a short sale, like most others, requires an arm's length transaction (one in which buyer and seller act independently, in their own interests) and a purchase/sales price consistent with fair market value.
What all this means is that although a short sale can be a great deal, both a buyer and seller need to remain conscious of the fact that this is NOT a foreclosure auction. The seller will need to price the home fairly and a buyer should expect to pay fair market value (the buyer usually gets a slightly discounted price due to the distressed nature of the sale), but neither party should expect a windfall.
Talk to the Experts
To begin, it is important to work with a realtor and attorney experienced in the short sale process. I am Loss Mitigation Certified and have successfully sold several short sales properties. These transactions involve some unique procedures and challenges. An experienced realtor like myself can help you close the deal with a minimum of problems.
For an experienced legal team to help you with a short sale, contact Kevin Hart at Hart Associates, 189 Main St., Marlborough, or call 508-485-5400. Their office will consult with you to discuss the specifics of your house, financial situation, possible credit implications, tax consequences, and bankruptcy implications. Visit their website at www.hartlawpc.com for more information.
To conclude, a short sale can be a great tool for buyers and sellers. If making the monthly payments on your home has become a hardship, or if you need to relocate and your home is simply no longer worth what you currently owe to your mortgage lender, a short sale is a viable option. Call me if you think a short sale is a possibility for you, and I can help you decide on the best course of action, and guide you through the process.
Call me, Michelle Gillespie, at 508-934-9818 or email [email protected]. Visit my website at www.michellegillespie.com for more information.
