Short Sales Require Perfection – by Jason Kapit
Categories: Foreclosures, Real Estate News
hiShort Sale abbreviated definition – Selling your home for less than is owed with lender approval.
The issues surrounding short sales have become almost mainstream today. Can’t afford your home? Avoid foreclosure via the short sale. Is it that easy? Not by a long shot.
Truth. The banks don’t have the staff to explain it and I am not even sure they could explain it if they did because short selling is essentially new to the banking system and although they have dealt with similar scenarios in the past, never before has there been the volume, UNTIL NOW.
The best way for me to explain why you need to be PERFECT if you are a seller who is considering a short sale is by scenario:
Suppose you have a mortgage or mortgages on your home totaling $800,000. Your home is worth $600,000. The following two questions need to be addressed before the banks will even consider allowance of a short sale.
[1] Is there a financial hardship? No hardship – no short sale. (i.e. “I am strapped for cash and I don’t want to sell my other 9 investments properties in this environment” won’t cut it)
[2] Are you current? This is tricky but if you are current on your loan(s), you may not qualify for the short sale scenario either, because without a solid argument, there is no hardship, YET.
Assuming, the answer to number one is ”yes” (you will have to prove it) and the answer to two is “no”, you may then , subject to lender approval, try and sell your home in this market but you better be PERFECT in execution, otherwise you may be doomed to foreclosure.
PERFECT in timing and pricing. The two are inter-related and if you can not adequately execute both, you will be in trouble.
[1] Timing. You don’t have much time. Sure there will be people out there that will beg to differ and argue that you can stall an inevitable foreclosure for months and even years…which may be the tactic of choice if you wish to continue the daily stress involved for months or even years. I think you would have to be a sadist but who am I to judge. Assuming you are not, the goal is to quickly put an end to this, which leads to pricing.
[2] Pricing. Sounds easy but it isn’t. Here’s why. There are two trains of thought on this. [1] Price as close as you can to recovering the full debt even when comparables dictate a lower selling price. Insane idea, never works. [1] Price it rock-bottom, essentially ringing the dinner bell for all vultures to come by for a quick pick-up. Also insane, works every time, but many times with dire consequences. Pricing too low is often a mistake made by a seller who is elated by the bank’s allowance of a short-sale scenario. Sellers misunderstand the effect of the short-sale as they often equate it to a do-over, even though a majority of the time it is not.
The short sale will allow the seller to avoid the ominous default and ultimate foreclosure which may undoubtedly wreck their credit but, IT WILL NOT AUTOMATICALLY RESET THE DEBT (shortage) OWED! For instance, if you owed $800,000 and the short sale of your home recovers $600,000, the shortage of $200,000 is still in question. More often than not, the shortage will be designated as a collectible balance. It is still a deficiency and a recorded judgment, much like the original mortgage. On some occasions, banks quash the entire debt and absorb the loss but with the amount of short sales occurring, lenders are in no position to write down these losses so long as they are not going to have to hold onto tangible assets.
Bottom Line: If you are even remotely thinking about selling your home via the short sale process, understand that it is a PROCESS that requires real guidance and precision to navigate successfully. For questions regarding your specific situation, my contact information is below.
Jason Kapit, Esq. is a Realtor with EWM. Contact Jason at 954.650.4443, buzz@jasonkapit.com or www.jasonkapit.com.
