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Others can get much more specific.
In its simplest form, a short sale is when the current mortgage is more than the amount the property can be sold for. The seller will list the property for less than what is owed on the mortgage and attempt to find a buyer (sometimes the current owner has involved the mortgage company, sometimes not). Your "bid" has to be accepted by the bank, and basically the bank agrees to forgive the difference to the original homeowner.
Some of the con's is that it is normal for these sales to take 4-6 months, it also gets fairly nasty if there are multiple mortgages (all lien holders must agree to the deal). The real estate agents take a haircut too, and it is often more work (administratively) than a conventional listing/sale.
Some pro's are that the original homeowner gets out from under the mortgage, and deals can be had in some situations to the bidder. As usual it all boils down to the almighty dollar. If the owner is still making payments, the bank is less likely to negotiate. If the bank is given the option of a short sale or actually pushing the property into foreclosure, it may make more sense financially for the bank to accept a short sale.
I am involved in a short sale right now. I had an accpeted offer from the seller on 1.10.2010 I did my home inspection and the offer went to the first bank. ( they have 2 mortgages) on 2.10 Wells Fargo accepted the short sale and sent it onto Chase who is the second bank, they have had it ever since, they were supposed to answer on 3.15 but they said they needed 3 more weeks. Now I am just waiting. I did sign my P&S in Feburary.
The pros of it are, if my sale goes through I will be getting into the exact neghborhood I want for less money than paying market values, the cons of course are the waiting and waiting, and waiting. I would highly recomend making sure the listing agent is very skilled in the short sale process, because they are your only hope in moving things along.
Good Luck!
Last year I was in the position that required me to Short Sale my home. I owed $471,000 and the home was worth $250,000. Due to a loss of income of over 20%, I could no longer afford my home. I had two choice, 1) Walk away and have a foreclosure, or 2) Do a Short Sale. I did someone research on Short Sales and everything I read stated make sure you get a experienced agent, so I did. I listed my home for $250,000 and within two weeks I had an offer. 5 weeks later, our lender "Aurora" approved it. The following month we closed and moved out. My mortgage payment was $3,000 per month. Now I pay $2,500 per month for rent and live in a much nicer neighborhood. The down side, my credit took a big hit. Prior to the Short Sale and when I was making my mortgage on time, I was around 750 FICO. When I decided to Short Sale, I stopped making payments, which drove down my score even further. I did the Short Sale in July 2009 and my FICO has gradually increased as each month has passed.
In the end, the Short Sale was the best decision I ever made. I feel I was responsible by selling the house and not just walking away. Second, I don't have the stress of trying to hang onto a home I could no longer afford. And my goal of hitting a EQ: 700 FICO by the end of the year seems feasible.
@Anonymous wrote:I am involved in a short sale right now. I had an accpeted offer from the seller on 1.10.2010 I did my home inspection and the offer went to the first bank. ( they have 2 mortgages) on 2.10 Wells Fargo accepted the short sale and sent it onto Chase who is the second bank, they have had it ever since, they were supposed to answer on 3.15 but they said they needed 3 more weeks. Now I am just waiting. I did sign my P&S in Feburary.
The pros of it are, if my sale goes through I will be getting into the exact neghborhood I want for less money than paying market values, the cons of course are the waiting and waiting, and waiting. I would highly recomend making sure the listing agent is very skilled in the short sale process, because they are your only hope in moving things along.
Good Luck!
dietsodafix,
When your offer went to the Wells Fargo...was the short sale already considered a "bank approved short sale?"
RickintheOC.....I am in a near situation as you are/were and am very interested in knowing how things have turned with you since some time has passed. I was relocated by my employer to another state and had to short sale my home in 01/2010 because the buy-out offer from them was lower than what I owed, but at least I sold it and like you, didn't take the low road and just move away and leave it to foreclose. The overall difference was less than $15K and it was reported as "account settled-paid" (or something to that effect) on my credit reports and I owed nothing. With my company's relo package, they will pay my closing costs for me to purchase another home but I must do so before 2013-I want to in 2012 (Wells Fargo requires a 2 year wait to obtain another FHA loan). My score was 717 before the whole relo deal and it's now near 640
So have you attempted to buy another home yet and if so, has that been successful or did you get a lot of brick walls? I understand that short sales mirror foreclosures in many ways in terms of credit worthiness review, but I've also heard from my realtor that you should PROBABLY bounce back relatively soon. And also, how was the short sale reported on your credit score?-any suggestion as to how it should read so that it's more favorable?
Any insight you could offer would be great. I know everyone's situation is unique, but it would be helpful to have an idea of if I need alternate plans in the event that I would most likely not be able to purchase another home anytime real soon.