Advantages and Disadvantages of a Short Sale

Potential Advantages 

In a short sale, the seller avoids the lengthy and stressful foreclosure process and eliminates the stigma attached.  Short sales also minimize the detrimental impact that a foreclosure or bankruptcy would have on their credit score.  The timeline to purchase a new home is also significantly reduced compared to what it would be following a foreclosure.  Additionally, the seller in a short home will typically avoid owing the remaining balance of the mortgage loan to their lender.   One advantage that we guarantee our seller at IMAX Premier, is a short sale cash incentive.  We have money set aside for our customers who wish to short sell their home so you do not have to deal with the hassle of trying to get cash incentives that your bank may have promised you.

Advantages to buyers a short sale property have the chance to move into a great property at a discounted price.  The buyer of a short sale also has the added bonus that they do not have to go through the task of evicting tenants from the foreclosed property.

Mortgage lenders benefit from avoiding the lengthy foreclosure process and receive the majority of the loan principal sooner.  The lenders primary goal is to get their money back and avoid taking responsibility of selling a home and  a short sale helps them to attain these goals.

BENEFITS OF A SHORT SALE:

  • You are in control of the sale, not the bank
  • You won’t suffer the stigma associated with a foreclosure
  • No mortgage payments to make
  • You can meet the new owners of your home which can alleviate some of your concerns
  • Your home sale will be handled like any other home sale
  • You will be eligible to buy a new home in 2 years instead of 5-7 which is the case after a foreclosure
  • If your credit report does not reflect a 60-day-plus late pay, under Fannie May guidelines, you will be eligible to buy a new home

    immediately; the wait for an FHA loan is 3 years

  • Loan applications do not ask  questions about short sales, you may report that you sold your home
  • The wait for a short sale approval can extend the amount of time you can reside in your home
  • Deficiency judgments are negotiated between the seller and the short sale bank and if it is your personal residence and was financed through purchase money, there may not be a deficiency judgment
  • The negative effect on credit score can be overcome more quickly than with a foreclosure

Potential Disadvantages 

Not all lenders will relieve the seller of the responsibility for paying off the remaining balance of the loan.  Prior to entering into a short sale, the seller should receive solid commitment from lenders that states that part of the agreement is that they are absolved of the remaining debt.  Although the effect is not as substantial as in a foreclosure, the seller must acknowledge that a short sale will affect their credit to some extent depending on how the lender reports it to the credit agencies.  The seller should discuss this issue with their lender to figure out how that particular lender reports short sales and the effect it will have on their credit.  Furthermore, not all sellers qualify for a short sale.  Few lenders will enter into a short sale with a homeowner who has not already missed multiple payments.  If you are a seller thinking about a short sale, discuss your options with your lender and an experienced short sale real estate broker.

Buyers of short sales need to be wary because although they may receive a great deal on the property, there are extra steps that must be taken when entering into a short sale that requires additional homework and assembling the right paperwork.  Buyers who wish to purchase a short sale must consult with an experienced short sale real estate agent who can guide them through the process, answer any questions about the complicated process, and to help prepare them to gather the required information.

DRAWBACKS TO A SHORT SALE:

  • Waiting for the bank to respond to an offer is frustrating
  • The bank will examine your personal records including tax returns, bank accounts, assets & liabilities, and you will have to provide a hardship letter
  • Accommodating buyers means you have to keep your home spotless and open for viewings for weeks or months until an offer is received
  • There is no assurance the bank will accept a short sale offer
  • Although not as detrimental to your score as a foreclosure is, a short sale can ruin your credit rating, typically because you were behind on your payments.  All lenders report short sales differently and some not at all so unless the bank specifically agrees not to report the shortage, they can report it as a Score Factor Code 22 which refers to delinquencies, derogatory records and collections.  Comparatively, it may say “paid as less than agreed” or “paid as agreed” among other things.  Your FICO score can drop from 50 points to 100 points compared to 300-400 in a foreclosure.

Michelle Mahzari, CCIM at IMAX Premier has vast knowledge and experience when it comes to short sales.  We can provide you with all the answers and guide you the process making it as pain-free as possible.  Furthermore, at IMAX Premier, we guarantee you a short seller cash incentive  separate from what banks offer to ensure that you receive the cash incentive.  Contact one of our representatives if you are considering a short sale or have any questions.

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