A Primer on Short Sales
A short sale happens when you:
A – Need to sell
B – Owe more than the sale will bring you because of falling property values
C – Don’t have enough cash to cover the shortfall
Let say that someone purchased a house at the top of the market. They paid $500,000. They put little or no money down. Now they need to sell. But the house is now only worth $400,000.
After closing costs and possibly late fees, missed payments etc. they will net $350,000 from the sale. They don’t have $150,000 available to pay off the mortgage.
They need to go the short sale route. They need to get the bank to accept less than what the bank is owed. Banks will often accept this because the alternative is for the bank to foreclose, which may be more costly to the bank.
In addition, before the bank will take a loss and approve a short sale, the sellers need to share their pain. Any stock and savings accounts must go towards the shortfall, as well as IRA’s 401Ks etc. The seller basically walks away with $0.00
Many people have the idea that a short sale is a bargain. Sometimes yes, sometimes no. Since the seller is walking away from the house with nothing, same sellers take everything that is not bolted down, Others take even more. Some go as far as cutting out all copper pipe to take to the scrapyard.
The bank needs to keep their loss to a minimum. Homes quite often sell for close to market value. If you’re trying to purchase a short sale home, here’s the bad news. When you make an offer on a short sale, it may take some time for the bank to make a decision as to whether your offer gets accepted. It’s not uncommon for a decision on your offer to take months. Until the bank replies yes or no, you don’t know if you bought a house or not.