Short sale – making the best of a bad situation
By Louise Bolger
sun staff writer
"It was the best of times, it was the worst of times." I’m pretty sure Charles Dickens wasn’t referring to the Florida real estate market when he wrote this introductory sentence to “A Tale of Two Cities,” but as it turns out as bad as the real estate times seem to be, there are good times for some.
Many property owners are having problems making their monthly mortgage payments because of adjustable rate mortgages that are adjusting upward. Fortunately, foreclosure is not necessarily the only option for these owners who may be able to qualify for a "short sale" workout with their mortgage lender.
A short sale can occur when the outstanding obligations against a property are greater than what the property can be sold for. Short sales are a way for homeowners to avoid foreclosure on their homes and still be able to pay off their loan by settling with the lender who forgives the balance of the note.
Short sales can be a win-win-win situation for sellers, buyers and lenders. The seller gets out of the mortgage liability without facing bankruptcy. The buyer gets the home at a reduced price and the lender agrees to a loss it considers minimal without waiting through a foreclosure proceeding, and without being saddled with the expense of a property to sell in a down market.
If you have been trying to sell your property before a foreclosure action is taken, don’t turn away offers that are lower than you’re outstanding mortgage. Assuming your buyer is both qualified and serious, your lender may consider them as potential buyers for your home.
The first step would be to contact your lender, sometimes easier said than done. You may have been making your mortgage payment to a service company working for the lender, so you need to get through that first layer of bureaucracy. When you finally get to the lender’s customer service division, try and speak to the highest level supervisor or manager you can. Ask the lender what its procedures are for a short sale.
Some are willing to work with you by reducing the amount owed or making other arrangements, and some may look to the real estate agent, if one is involved to make concessions. If the lender is willing to work with a short sale, the process can turn into a negotiation between all parties similar to a traditional real estate transaction.
In addition, the IRS frequently gets involved with short sales because they may see it as a relief of debt which could be treated as income. This could also happen if there is a foreclosure, professional accounting advice should be attained in either of these situations.
If you’re a buyer working with a homeowner on a short sale, you could be getting the property at a reduced price. However, the procedure of waiting for a lender to decide whether to agree to a short sale could make for a lengthy buying process that will maneuver through many levels for approval before accepting. In addition, the lender will undoubtedly require very firm proof from the buyer of his ability to obtain financing.
Making the best out of a bad situation is what short sales is all about. It’s a compromise that could work for everyone with a little perseverance and patience.
I guess Charles Dickens was right after all, there is best and worst in every one of life’s challenges.