To Short Sale or Not to Short Sale?

Many homeowners in the Santa Clarita Valley are asking about whether they should consider a short sale or not.

So you’ve found yourself upside-down on your house, where the mortgage balance far exceeds the current market value, and you can no longer afford the payments. What do you do?

Your options include 1.) stay put and wait for the market to recover (historically the real estate market goes in cycles); 2.) walk away and let the bank take the home through foreclosure; 3.) buy a lottery ticket and pray that you win; or 4.) consider a short sale.

What is a short sale? In a nutshell, a short sale is when the bank agrees to settle your mortgage(s) for less than the home is worth. You list the home for sale as though it is a regular sale, but with a “short sale addendum” that explains that the bank must approve the sale before it can be completed. The bank will generally pay for all fees and costs associated with the sale, including real estate commissions, escrow and title fees and property tax prorations. Often they’ll also pay for delinquent property taxes and homeowner’s dues as well.

Don’t expect to walk away with any proceeds from a short sale – the bank is already taking a loss, and they’ll not be letting you put anything in your pocket from the sale of your home. However, whatever you owed on the home is most often eliminated without recourse, no matter what those funds were used for.

So why do a short sale instead of just letting the bank take your home through the foreclosure process? Your credit score takes less of a “hit” with a short sale than it does with a foreclosure, and your neighbors don’t have to ask why there are notices posted on your windows and local law enforcement pounding on your door as your home gets scheduled for the foreclosure auction. You also have at least a small amount of control over your move-out date in a short sale, where you don’t with a foreclosure.

The short sale process can be relatively long, although some banks are becoming much more efficient lately and quite often we’re seeing approvals within 30 days from the date a buyer’s offer was submitted. Be prepared to provide the bank with information as to your current financial situation (income and assets), as well as a hardship letter as part of the short sale process. Also, be sure to hire a Realtor who is experienced in short sales… short sales take a lot of extra jumping through hoops and follow-up, and a file that is not prepared properly will just get sent to a deep, dark corner somewhere never to see the light of day.

Need help with a short sale? Call Santa Clarita Realtor Linda Slocum at 661.670.0349.