You may have heard the term “short sale” and maybe even wondered what kind of opportunities these types of transactions offer in the West Linn real estate market. Here is a quick rundown of the short sale process. Let’s start with the definition of a short sale.
A short sale is also called “Short Pay” or “Negotiated Settlement”. A Short Sale happens when a lender concurs to an agreement to accept a less pay of the original amount owed as an alternative to foreclosure. This can be an ideal option for sellers who do not want to have their home foreclosed on. In a short sale, lenders are willing to accept less than the total amount due on the house and will not have to foreclose and spend more money and hassle trying to sell a distressed proper. The key to a short sale is for the seller, with help from a real estate broker, to demonstrate to their lender that it would be in the lenders best interest if they take a less payment than what’s owed, compare to foreclosing and selling the property back to the market.
Short Sale is a solution for both homeowners and lenders. It may eliminate some of the penalties, consequences, and other possible effects of foreclosure. It offers another avenue to help financially challenged families, the entire housing market community, and the economy in general.
Here is a quick example: Assume a homeowner has an unpaid loan balance of $300,000 on their West Linn real estate, but the property will only sell for $225,000. If the lender accepts that $225,000 as payment, the $75,000 amount is short of the total owed to the lender.
Now not many lenders in their right minds want to blindly accept a short sale. Since they are not in business to lose money, this is where a real estate professional can help the distressed seller. Being able to show a hardship suffered by borrower is a necessary step to getting a lender to accept the terms of a short sale. These can include:
- Critical illnesses which eat up financial resources.
- Military personnel who are called up to active duty for extended periods of time and lack the income to continue mortgage payments.
- Disabling and permanent injuries
- Financial insolvency
- Lack of employment due to poor economic conditions, etc.
Lenders aren’t always crazy about short sales because, as stated above, they’re not in business to lose money. But in many situations, it may actually make more financial sense (cents too!) for the lender to institute foreclosure procedure as opposed to the short sale.
Short sales can benefit the lenders, sellers and buyers. They are a much more complicated process than usual real estate transactions. The complications come from the following sources:
Loan mitigation policies (of the lender and third-party investors)
Financial condition of the same
The borrower’s financial condition
The property’s “as-is” value
Cost to repair the property in order to put it into saleable condition and market it, etc.
Approval for short sale must come from the investor who actually owns the loan.
Red tape (if the lender is a government-sponsored institution like Fannie Mae or Freddie Mac)
Who are the Principals in Short Sale?
A Short Sale process is now becoming a typical transaction in the Portland metro real estate industry. Real estate transactions generally involve a seller and the listing agent and a buyer, lender, and their buyers agents. Their can be other participants during the Short Sale process also include a housing counsellor, the seller’s loan servicer, junior lien holders, insurance agents, mortgage investors, and a short sale specialist.
Since there are different parties involve in the process, this makes Short Sale a bit complicated and very document driven to complete. It would benefit a seller in this predicament to hire a West Linn Realtor who will work with you through the short sale process. By using someone who is familiar with the process can help ensure that you will not miss a single detail. Staying on top of all the steps will help keep the transaction moving on schedule as well meeting other specific requirements.
Homeowners might want to consult a tax expert, ask an advice from a CPA, or even consult an attorney to protect themselves for any legal issues that may arise from the process. I have contacts if you need one.
In short (pun intended) a good short sale transaction will benefit an informed buyer, a motivated seller and a lender who is willing to cut their losses.
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Rich Peralta is a real estate professional in the Portland Metro Area,
including Lake Oswego, Tualatin and West Linn Real Estate.
He can be reached at 503.961.2181 or by e-mail at email@example.com
Contact him for more information on Portland, Lake Oswego or West Linn Real Estate!
Also posted on Lake Oswego Real Estate.