Short Sales in an Economic Downturn
By Eileen W. Smith
The recent economic downturn related to Covid 19 virus has raised questions once again regarding the feasibility of Short Sales. First, the definition of a short sale is when a mortgage lender agrees to allow you to sell your home for less than what is owed. In some cases, releases you from the liability of the deficit balance. It does not happen quickly, and in extreme cases can take a year or more, but while your application is being processed and your home is marketed for sale, you have to agree to continue to reside in the home paying utilities and performing the required maintenance to keep the house in a livable condition. In some cases, they will even give you cash at closing to pay for moving expenses, rental deposits, etc.
You need to owe more on your home than you can sell it for in its current condition and you must have one or more of the following qualifying hardships:
- Loss of income due to loss of a job, reduction in income or disability
- Loss of a wage earner through death or divorce
- Excessive medical expenses related to a serious illness
- Forced relocation for employment that is more than 50 miles from your current home
- Excessive debt (i.e. multiple mortgages, car payments, credit cards and other lines of credit)
- An adjustable interest rate being reset higher than you can afford
- Recall to military service
- Natural disaster
The last three are not likely in the current economy, and #5 is very hard to prove, but I did do one short sale where the homeowner was able to prove excessive debt.
A mortgage lender is not likely to forgive the deficit balance if the property is an investment, second or rental home. In almost every case they require the property owner to sign a promissory note to pay back the deficit balance.
The biggest myth is YOU DON’T HAVE TO BE BEHIND ON YOUR PAYMENTS TO QUALIFY FOR A SHORT SALE.
The application process is detailed and extensive and non-compliance with the process will cause your request to be denied. But if you have no other choice than to do this or go into Foreclosure, it will save your credit and allow you to purchase your next home sooner rather than later.
Right now, a large majority of people have either lost jobs temporarily, permanently, or suffered a decrease in income with an increase in debt, particularly if you’re a small business owner. Stimulus checks, added unemployment benefits and SBA Loans either won’t be enough or won’t help everyone.
But before you throw your hands up and decide to pursue a short sale you may want to look at what it is going to cost you to rent a home vs. paying your current mortgage. In many cases it could cost you more, throwing you and your family out of the frying pan and into the fire.
Most mortgage lenders are willing to work with you to move some of your payments to the end of your loan, but you must call and talk to them! But they would much rather do that than force you to sell your home as a short sale or foreclose on you. With the current uncertainty with Covid 19 virus and the needed social distancing that is causing economic upheaval, it is best to reach out for help sooner rather than later.
We are here to help you and your family through this economic downturn. Please contact us at 800-871-1219 or at firstname.lastname@example.org. If you would like to speak to Eileen W. Smith directly, her contact information is below.
Eileen W. Smith has been a licensed Realtor since 2003, receiving her Broker’s License in 2012. During the Real Estate downturn Eileen became proficient at closing Short Sales and helped hundreds of Homeowners transition without going into Foreclosure.
Prior to her Real Estate Career Eileen was a Telecommunications Engineer and also served in the United States Navy as a Cryptologic Technician.
Eileen and her husband Ryan have 5 grandchildren, 2 dogs, and live in Stone Mountain Village.