What The Heck Is A Short Sale

Please note, this transcript is an abbreviated version of the video.

Hello Hello Hello my loves this is Laura Key, I am the Realty Goddess of Los Angeles California. I help "Establish the Community One House At A Time" and I have been in the business for 11 years.  I started my career in Colorado and now I am in Los Angeles. I have been in Los Angeles for about six years now and I was a Realtor in Colorado for five years. I love me some Denver. Denver is actually going through a big boom right now as well as Los Angeles. 

What the heck is a short-sale? You see them listed on the MLS sometimes and you hear that you can grab a bargain if you purchase one. Today we will discuss these issues and educate you on how these types of sales are processed.

The first thing to learn about a short-sale is that there is nothing short about a short-sale! What is actually short, is what the owner currently owes the bank compared to what the current market value is. If the home is upside down or less than what the current owner paid then the owner has to ask permission from the bank to sell the home at a loss.  There are many different reasons that people have to do a short-sale but it's typically centered around a hardship. Maybe the owner lost a job, lost a spouse, has to relocate for a job or has become ill and can no longer afford the home. 

Let's take a quick look at what a short-sale is and how it is processed so you can get a better understanding as a buyer so you can decide if you want to go for them as a purchase OR have a better understanding if you are in the seller role.

The number #1 rule is worth repeating...There is nothing short about a short-sale.

The first thing you want to do if you are the owner and have found yourself in a financial bind and you need to sell your home but you cannot pay off the full mortgage, you must contact your financial institution immediately. Let them know the situation and tell them you are interested in doing a short-sale. The majority of financial institutions have short-sale packets ready for you to fill out. The more pro-active you are the more chance you will have in selling your home as a short-sale. These packets can be very tedious and frustrating because it's a lot of paperwork and a lot of writing.

Here is typically what you are going to be asked for: two years worth of taxes, a hardship letter that explains why you need to sell, 3-6 months of pay stubs, 3-6 months of bank statements.  If you don't have any of these items, you must write a note as to why you do not have theses items. Simply saying "I don't have them" will not work. Write it out and put it in the packet. Your hardship letter needs to explain exactly why you are having a hardship. Keep it simple and to the point, there is no need to write a book. My advice is to have all of these items completed BEFORE you list the home. Your real estate professional can help guide you on this.

Your home will be marketed just like a regular home for sale. We will have open houses, we will advertise, we will have showings. Once that has been completed and we have an offer or offers, we choose the best offer to accept then prepare to present it to the bank. I must stress that a COMPLETE short-sale packet must be sent to your bank or it can cause problems. It will be the ultimate decision of the bank if they will accept the offer or not. Most likely they will respond to what "their" terms will be for any potential buyer. It takes about 45 to 120 days for a short-sale to be completely processed. 

To the buyer, short-sales are not always easy, you are going to have to be patient. If you like that house and you want that home then you must be patient while this process is going on. Unfortunately, an agent is not going to be able to update you daily, but a good agent knows that they must talk to the bank at least twice a week to keep the short-sale moving smoothly.  I typically give all parties an update once or twice a week as I get them.

Are short-sales always a good deal?

Some are and some are not. It also depends on the market itself. We are in a seller's market (May 2017) and this means inventory is low so ALL homes are being considered by many buyers. You will find multiple offers even on distressed sales.  Sometimes being a backup offer on a short-sale can benefit you because nine times out of ten the writer of the original winning offer is no longer interested. 

How does a short-sale affect your credit as a seller?

Short-sales are not as bad as a foreclosure on your credit. If you keep your credit clean after your short-sale, you may be able to buy again after two years. Short-sales are reported on your credit. It will affect your credit score.

I always advise if you are in trouble with your payments, please contact your financial institution as soon as possible and inquire if a short-sale is for you. In the long run it's going to be better for you and your future home buying.

For more information about short-sales or any other real estate topic please reach out to me and I will help assist you!