When a real estate property is sold, usually the seller makes some money from the sale after everyone owed is paid back. But sometimes, the property can be “underwater” or “distressed.” It means the property value is less than what is owed. For example, when the mortgages still owed are $900,000.00 and the fair market value of the house is only $800,000.00, the house is “underwater.”
That’s when a “short sale” is applicable. A short sale is when a house is sold for less than what the property owner owes on it due to decrease in value, and the lender end up not get all of its money back. Lender not getting all of its money back sounds like a win for the seller, but it isn’t really a win since the property is underwater and no money can be made from its sale. The homeowner not only has no equity, but in fact has negative equity. People sometimes misunderstand the short sale as simply selling a house for cheap, but it’s about selling a cheap house the right way. It is about tying up the loose ends for the sellers.
Although there is no profit to be made for the short sale sellers, there certainly are benefits in doing a short sale.
If some mortgage payments are missed and foreclosure has either started or will start soon, the borrower/homeowner can try to settle that debt with the lender through a short sale. A short sale as a settled debt has less of an impact on the seller’s credit score than a foreclosure. Also, lenders could sue the borrower personally for not being paid back in full after foreclosing the underwater property–but when lenders agree to a short sale, they are also agreeing to not come after the borrower. Lenders may even agree to pay the short sale sellers some relocation fee, for the short sale that otherwise yields no proceeds for sellers. Even with no missed payments and no threat of foreclosure, maybe the continued payments on an underwater home and just waiting for value to go up makes no sense for the homeowner.
Short sales are more complicated and often lengthier than the normal sales. On top of everything that is required to sell a house, sellers must apply to the lender seeking the short sale status. It entails explaining the property owner’s financial difficulty and proving to the lender that the property is underwater and mortgage cannot be paid back in full. Sometimes lenders still believe that the property is not underwater, or think that they can get more back from foreclosure than short sale. Even after short sale is approved, there are extra closing requirements by the lenders and the title companies alike. Sometimes there may be more than one lenders or even lienholders, and all such interested parties must be coordinated to cooperate. Short sale process takes a while, and any pending foreclosure requires expertise and experience.
JCKLAW has helped many people save their homes–but when it’s finally the time to let go, especially of the underwater property, we are here to help you tie up the loose ends properly with our expertise and experience.
If you are interested in finding out more about the various options about selling or buying a property, including short sale, contact our office at 718-539-1100 or email us at info@jckimlaw.com. We are here to help.