Short-Sales: Patience is the Name of the Game

Short-Sales: Patience is The Name of The Game
Author: Joe Mendoza

In a world that is full of uncertainties Short-Sales ranks high on the list. As you look through the Multiple Listing Service (MLS) or drive around town a majority of the listings available are in this Short-Sale category.

What is a short-sale? To keep it short and sweet, let’s just hypothetically say a homeowner bought their house around the peak of the market (2004-2007) for $500,000 in Chula Vista, CA. Today 2010, it is now only worth $280,000. Mr. Seller still has a loan of about $490,000. He wants to sell and get out of it, but he has no ability to write a check to cover the deficiency or difference ($280,000 - $490,000 – cost of sale) = $210,000+ to get out of the home. He’s very motivated because he has a job transfer to Japan and will be out of the country several years.

He has several options: #1 - Keep it and rent it out, but rents in the area are $2000. His current monthly payment to the bank is $3500. He will be short $1500 out of pocket every single month. Eventually when he runs out of money, taps out his savings, credit cards, and retirement, it inevitably becomes a short-sale or foreclosure situation anyway. #2 - Walk away or abandon the property and simply let it “foreclose” and the banks take over. That will damage his credit and typically stay on his credit report for up to 7 years. This will make it very hard to qualify for another loan if he wants to buy a car, finance jewelry, furniture, etc. Or #3 - Do a Short-Sale. Typically in 2-3 years he may be able to repurchase another home provided he reestablished his credit and the new lender allows it.

More than likely Option 3 is best. There are some repercussions by choosing a short-sale, but usually not as harsh as Number 1 and 2. Please check with your local tax and legal professionals. Keep in mind real estate agents and brokers are NOT supposed to tell you which one to do or give you tax or legal advice. If they do, I suggest you look for another agent immediately because it may cost you thousands of dollars and years of headaches for wrong or bad advice.

As far as being a buyer of a short-sale, a seller usually looses control of the decision making process in a short-sale. The bank or original lenders loss mitigation department becomes the biggest decision maker to approve or disapprove a short-sale because they are going to suffer a severe loss on the sale.

Why does it take long for the approval? The banks today are simply inundated with stacks of hundreds of thousands of these types of transactions and it unfortunately takes time to go through these files one by one. The government is trying to help minimize losses and even hoping to keep some folks in their home if they wish to. Complex mathematical formulas for these transactions are involved. Also, sellers have to provide documentation as to why they should be granted a short-sale and/or “forgiven” of the debt on this type of transaction. These reasons and a few others are the main reason why it takes so long to close this sale.

However, like anything else. There are positives and negatives to both sides of the fences as a seller and buyer. Truly, patience is the name of the game to keeping your sanity, minimizing your losses, and maybe even getting a great deal on a short-sale.

About the author. Joe Mendoza is an active local real estate broker and serves the San Diego and Temecula marketplace. He’s been recognized as a Top 1% Producer in the nation, nationwide and local news, and “Who’s Who In Real Estate”.