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How Do Short Sales Affect Me?

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A short sale is a real estate transaction where the lender receives less than the full payoff of the loan when a sale is closed. In the 2nd quarter of 2011, short sales were 17% of all sales in Colorado vs 10% a year earlier. An unofficial survey of the Metrolist database shows short sales account for over 20% of residential listings that have received a purchase offer. Add to this, a number of homes for sale are on the verge of becoming a short sale if the buyer offers less than list price or asks for seller paid closing costs which has become customary.

For all of us, the short sale is having a major impact on our economy by the effect it’s having on the real estate market. It seems beyond the capabilities of economists to accurately determine how it affects the economy due, in large part, to the politicization of the issue.

For homeowners, a short sale is an effective way to get out from under a home they must sell that is “under water” meaning they owe more than they can get from the sale of their home. Pros and Cons:

• Harm to the Seller’s credit is much less than a foreclosure.
• Lender may require Seller to make good on unpaid portion of loan.

• Bank of America reports that about half the time it doesn’t pursue the seller for the deficiency in the loan payoff.
• Those sellers that are required to pay the deficiency often are allowed a ten year loan at 0% interest or similar favorable terms.
• Under the HAMP (Home Affordable Modification Program) a homeowner may be able to modify their loan and stay in their home.
• Under the Home Affordable Foreclosure Alternatives (HAFA) program, it’s possible for the Seller to realize some proceeds from the sale in the form of incentives.

For Buyers a short sale is often an opportunity to get a home for under market value; in other words a bargain. There are, however, some costs incurred by the Buyer:
• A normal sale can be closed in about 30 days - a short sale often takes 60-120 days.
• The condition of a home at possession is often less than broom clean.
• The lenders are not good about keeping parties updated on the status of the sale.
• Some lenders refuse to take a payoff less than market value (Rarely).

For Lenders, the short sale is an alternative to foreclosure that makes good economic sense for them. It’s simply cheaper for them to agree to a partial payoff than to go through the expense of a foreclosure. The short sale is here to stay for as long as home values continue to remain low or drop. The only cure is for the pendulum to swing - and you know it always does - to the other side. But for now, the short sale is a reality that can bring relief to troubled homeowners and increase the affordability of home ownership.

Calvin Hada, Licensed Realtor
Calvin Hada Realty •  This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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