Why Go Short Sale If the Seller Makes* Zero Money?
Okay, if a seller doesn’t make money but 13 other people do* (see note at bottom) on a short sale, where’s the benefit to the seller?
Short sales happen when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale.
Not all lenders will negotiate a short sale, and that is why a real estate agent or a lawyer can be a tremendous help by contacting the lender’s loss mitigation department to find out.
A seller can’t just wake up one morning and decide they’re going to sell their home at a loss by asking for a short sale. Typically, lenders won’t even consider a short sale if payments are current. Lenders will be more agreeable to negotiation if your payments are in arrears. Plus, if the seller has cash assets, the lender might try to tap those accounts. Doing a short sale is not for the faint of heart.
The only reason to do a short sale is if the seller’s credit is at risk.
How is the seller’s credit affected?
According to David Steep, division manager at Vitek Mortgage, sellers will take a bigger hit on their credit report by going through foreclosure or giving the lender a deed-in-lieu of foreclosure.
The affect of a short sale on a seller’s credit report is much less damaging. The ding on credit will show up as a pre-foreclosure in redemption status, Steep says.
Also, a seller who wants to buy another home after foreclosure will end up waiting about 36 months before a lender will offer any kind of interest rate that makes sense.
The good news for short sale sellers is the wait is much shorter before buying another home: about 18 months at a good interest rate.
If you’re going after seller’s trying to decide whether to let a home go through foreclosure versus attempting a short sale, salvaging their credit is the main advantage to doing a short sale.
*Note: In a recent post Ruby Zuniga commented: “I believe that this [preforeclosures aren’t selling] is going on everywhere. I’m in the Los Angeles, San Bernardino and Riverside County Area. I have a listing in the S.B County and a listing in the L.A county. The Homes pre-foreclosures are not moving? Why? Agents don’t want to waste their time. They will rather take buyers to a Normal Home where their commission is guaranteed.”
Is this the case? I mean, if an agent helps his client buy a preforeclosure home, won’t he get a commission? Why isn’t it guaranteed? Granted, the agents may take a hit on the commission because the lender will insist on a fee reduction, but the bottom line is the agents and their brokers get paid for selling the property. I’m very curious.
