A short sale is when a homeowner puts their property on the market for sale and sells it for less than the amount they owe to their bank. You may ask…How can this be possible? Well this type of transaction has become very popular over the last few years and should still be here over the next few.
When a homeowner is behind on their mortgage payments, heading toward foreclosure, filing for bankruptcy, or has any sort of financial or health hardship that hold them back from paying their mortgage payments on time and consistently…they will and should attempt a short sale.
See, this short sale process is very extensive and thorough and could take a few months to complete. Think about it this way….Let say we use to following for our example:
Seller: Jon Doe
Bank: Bank of America (BofA)
Property address: 123 Front St.
Mortgage Balance: $500,000
Market Value: $300,000
Let’s say that Jon Doe just lost his job and has no way of making his mortgage payments on time anymore, so he is heading towards foreclosure. An alternative to a foreclosure is a short sale, so once we place the property on the market for sale and receive and offer, then we would send the offer and the completed short sale package over to the lender for review.
From here the bank looks at various items, including all of the seller’s financials to determine if he/she really does have a strong case or not. In our example we said that our client owed $500K and let’s say that the offer that came to us was for $300,000, we would communicate with BofA in this situation and continue to provide to them whatever information they require. During this time an appraisal has also been done by the bank to see what price they would agree to sell this property for.
Once the bank has come to a final decision they will send us and the escrow company a Final Short Sale approval and we can then, close out the transaction just like any other deal.
Since the bank, BofA, would be taking a large loss on this property they have to take their time and review all the details of the short sale. This is a HUGE reason why short sales take the way they do.