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The Real Estate Insider Scoop on Short Sales

Whether you need to short sell your home (to avoid foreclosure and save at least “Some” of your credit) or are in the market to buy and are curious about buying a short sale property, there are some things you should know going into it.

Some key things that a Seller needs to know are:
1.It can be a long process because you may go through several buyers before you get one that sticks with it all the way

2.If you have 2 loans on your property, it is likely that whoever buys your home will have to come up with extra money to pay off the 2nd.  A good short sale listing agent will be savvy to navigate this potential pitfall.

3.Through 2012, the debt that is forgiven by your lenders in a short sale of your primary residence will not be considered taxable income by the State or Federal government.

This is a good thing.  After they lift this moratorium, the debt forgiven in a short sale (or foreclosure) will again become taxable income.

4. Most real estate loans used to originate the purchase of a home in California are non-recourse loans, which means that the lender cannot go after you for a deficiency judgment after the sale has completed.

5.Last but not least, you are expected to demonstrate hardship to your lender(s) as part of your application for acceptance of the short sale.  If you are financially sound and are up to date on your loan payments, it’s unlikely that your lender(s) will accept the short sale.

On the Buyer’s side, some key things to know are the following:

1.You will generally get the best deal when you purchase a short sale because the seller is the most motivated of all sellers and cares the least about what price they get.

2.The seller first needs to accept your offer and their acceptance of your offer is then subject to short sale lender approval.  If the short sale lender has already accepted a previously submitted purchase contract and you are coming in as a subsequent buyer, the process should go quicker, especially if the price you have agreed to is as least as high as in the previously accepted purchase contract.

3. While it is always best to “expect” 2-3 months for the short sale approval, it is sometimes completed (by the short sale lender) within a month.  It depends on the lender, how many loans there are (it always takes a little longer with a 2nd loan), how quickly the listing agent puts together the short sale package (including your seller-accepted offer), and how often the listing agent follows up on the short sale approval.

4.Your contract time period terms (days to close, earnest money deposit, contingencies, etc) generally don’t start when the seller accepts offer.  Instead, the days start ticking on the purchase contract once the short sale lender approves the purchase contract.  One exception is that sometimes the listing agent will ask that you deposit your earnest money right away (so that you have some “skin in the game” up front, lessening the chance of you backing out), although that deposit is still fully refundable throughout the entire process of short sale approval and through your subsequent purchase contract contingency period.

Overall, the Short Sale is a win-win for the buyer and seller as the seller gets a large mortgage off their hands and the buyer generally gets the property at a price that they know is a good/low one for today’s market.  Knowing these key things going into it will give you the right expectations for a successful short sale transaction from either side.

Written by George Sudol/Broker of Bay Area Realty Services in Palo Alto, California                                 (www.ba-realtyservices.com Email: george@ba-realtyservices.com)

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One Comment

  1. Thanks George Sudol for this great site. Seems like there\\\’s always something new I learn even after being in the field for 10 years.

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