What is a “short sale”?

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A workgroup of the National Association of Realtors recently penned this definition for a short sale:

“A short sale is one where title has transferred; where the sales price was insufficient to pay the total of all liens and costs of sale; and where the seller did not bring sufficient liquid assets to the closing to cure all deficiencies.”

Wikipedia offers us this definition:

A short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor.

As becomes clear from these definitions, it is an actual closed sale where the seller’s loan was not completely paid off by the seller.  The bank must agree to this sort of a transaction, as they are not recouping all of the money they lent to the homeowner.

Why does this matter to homeowners in danger of foreclosure?

If you are having difficulty making your mortgage payments, and find foreclosure looming, you might first think of selling your home.  But if you can’t sell your home for a sufficient price with which you can pay off your mortgage, you might think you are stuck.  A short sale (if/when allowed by your lender) can help you out of this situation without the financial (and emotional) impact of the foreclosure process.

A few things to remember — you must demonstrate a “hardship” to the lender, and the proposed short sale (with a particular buyer, at a particular price) must also be justified for the lender so that they are confident they are obtaining as much (or close to as much) as is possible for the property in the current market.

Navigating the short sale process as a homeowner can be difficult and frustrating.  I am not (yet) a short sale expert, but I’d be happy to try to answer any questions that you might have if that would be helpful.

Why does this matter to home buyers?

You may encounter a home for sale that is of interest to you, and then discover that it would only be possible to purchase it if the bank approves the short sale.  For example, if a property is on the market for $200k, and you are prepared to pay $190k for it, but the homeowner has a remaining mortgage balance of $210k, and the owner can’t bring the extra $20k (plus) to closing.  In this scenario, if the seller is willing to sell it for $190k, and will seek short sale approval from the bank, it may be worthwhile to pursue the property.

One key thing to remember — the process is often very slow, and you may have to wait several weeks to hear back from the bank as to whether the short sale has been approved.

Are we seeing this in Harrisonburg and Rockingham County?

In many parts of the country, many (many) short sales are occuring.  I haven’t heard of a tremendous number in the Harrisonburg and Rockingham County area, but I know that a few have taken place. If you have questions about the process (from either perspective), feel free to call (540-578-0102) or e-mail me.