With the decline in home values in recent years, some homeowners who need to sell in today’s market find themselves stuck, because they owe more than their home’s value. In this situation, a short sale can be a viable option.
What is a short sale:
A short sale is simply a sale where the proceeds are not sufficient to cover all outstanding liabilities related to the sale of the home including the mortgage or mortgage, unpaid property taxes, attorney fees, title fees, commissions, etc. This shortfall would require the seller to bring the money to closing or to negotiate a “short” payment with their lender. Lenders have no obligation to agree to this, but many will. In most cases, short sales are made by sellers who face foreclosure or are left behind and no longer have the ability to continue their payments.
Process:
There are many misconceptions about the short sale process and the role of lenders in it, even among some Realtor®. The role of the seller lender is nothing more than a contingency. This can vary by state depending on whether it is a title theory state or a lien theory state. This information applies to Illinois, which is a lien theory state (the owner holds the title and the lender holds the lien on the property)
The seller owns the house and is ultimately the one who, with the help of their agent, accepts, rejects, or proposes counteroffers after the offer is accepted. When an offer is accepted by a seller, it does so on the condition that their lender agrees to accept the net proceeds of the sale as full payment of the amount owed. I’ve had more than one occasion where an agent working for a buyer asked when their offer would be submitted to the bank, even before the seller agreed to accept it. This can add to the confusion if multiple offers are accepted. Some people think that all offers should be made to the lender. This is not accurate. All offers must be submitted to the seller, not to the lender. The listing agent’s goal is to get the best deals, thereby providing the best chance of actually closing the deal.
What are the chances of a successful closing?
They are actually better than before. Now it makes sense for banks to seriously consider accepting a short sale because, in most cases, they make a lot more money overall than going through the entire foreclosure process, taking the home back and marketing it as an REO (Real Estate Owned). Illinois is a judicial state. Some states are not judicial. Judicial foreclosures take more time to complete. In Illinois, the process can take a year or more. There are some states that take more than 3 years. When you consider that, in most cases, banks receive nothing as the process drags on, you begin to see their motivation to consider other options. Coupled with property damage during that time and additional storage costs, and the advantages for the bank became clearer. Banks in this situation, like homeowners, are looking for the best way to limit their losses.
Advantages of short selling:
Lenders generally do not allow the seller to receive any proceeds from the sale. It’s fair to think that the whole basis of a short sale is negotiating with the lender to get them to take less than they have. The only exception I’ve seen was years ago when, by mistake, we lost a balance of $0.06. The title company actually deducted a check to the seller for six cents! As a seller in this situation, keep in mind that, if the lender approves a short sale, they are allowing the seller to avoid foreclosure in their records that followed them for years. In addition, most short sales also get the seller out of debt without being chased by a shortage. These two things should be the motivation you need. there is no guarantee for success but it is definitely worth the effort.
Who should you contact?
This transaction is not for beginners. There is no substitute for experience when it comes to navigating through this process. Experienced agents and attorneys are essential. In this situation it makes sense to ask a lot of questions. There is a special short sales/foreclosure course available for agents. Some are very valuable but this course alone does not necessarily make an agent an expert. The agent referred by the seller who has gone through this process is definitely someone worth talking to.
How much does it cost?
In most cases, you will not be charged anything unless there is an upfront fee charged by the agent to register the home. All agents negotiate their own fees. You don’t have to spend anything to talk to an agent and get information. All commissions and other closing costs that the seller would normally pay are taken into account and, if the lender approves the short sale, they agree to the net sale amount so that in essence, the lender pays your closing costs. For someone facing foreclosure, a short sale can be an excellent solution.