If you live in the Reno Sparks area and have had some contact with real estate sales, you have probably heard the term SHORT SALE. So what does a short sale actually mean? The simple definition is your mortgage balance is greater than the current value of your home. For example, if you bought your home for $250,000 a few years back and got a mortgage for say $230,000. For some reason you now have to sell your home. Unfortunately, if you sell your home today it will only sell for $150,000. This means the proceeds (selling price) will be “short” $80,000.
Here is an entry from wikipedia. A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan.[1] It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the current debtor. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrower.
So why would a bank be willing to take less than the home is worth? First of all, to even be considered for a short sale, you would have to have a signification “financial hardship.” Loss of a job, escalating mortgage payments, pay cuts, etc.. So the way the bank looks at it is if you are going to quit making payments on your home, we are going to have to foreclose on the house. The foreclosure process is lengthy and costly for a mortgage company. In addition, after the foreclosure the house will sit vacant and may get vandalized, the lawn will dye, and a stigma will be attached the property. In the end the foreclosure cost more and the property will end selling for less, not to mention the negative impact on the neighborhood. This is a loose-loose scenario for the bank/mortgage company.
With a short sale, the costs are much less, the property remains occupied, maintenance is kept up, and the property will normally sell for a higher price. The bank/mortgage companies will still loose money, but on a short sale the loss will be reduced.
Short sales are usually much better for the homeowner as well. The impact on credit is much less, you are able to stay in the house until it sells, and the neighborhood is saved from foreclosure.
If you are experiencing a financial hardship and are having trouble making your payments, a short sale might be a good option. As always, you should seek guidance from real estate professionals, attorney, and your CPA before you make a decision.
Call or email me if you would like me to take a look at your situation.
Ryan
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