One option facing many homeowners confronted by financial hardship who have mortgage payments they can no longer afford to maintain is to pursue a short sale. A short sale occurs when a home is sold for less than its current market value. To be completed, the seller’s lender(s) must agree to incur a financial loss on the sale.
Although short sales have been around for many, many years, until the recent mortgage-industry crisis, most of us were unfamiliar with even the term. Typically, in a healthy market, 1 to 3 percent of the houses listed for sale are so-called “distressed properties.” However, in many communities across the country today, 30 to 50 percent of current listings are short sales or foreclosures. In all likelihood, that shift in balance will linger for several years.
Typically, a short sale is a more desirable outcome than a foreclosure for the homeowner because it will incur a less-damaging hit on the homeowner’s credit and have a shorter-term impact than will a foreclosure. However, simply owing more than your home is worth at the time of a sale doesn’t necessarily mean you’ll be able to complete a short sale. You must first meet certain criteria to even be considered a candidate for a short sale.
First and foremost, you must have a significant demonstrable financial hardship (examples: you lost your job, your business failed or your income has been reduced significantly; you are being relocated for your job; your spouse or family member died; you are facing severe illness; your mortgage adjusted to a much higher payment; you have extensive medical bills; you are facing insurmountable debt; and divorce).
Further, you must be financially insolvent, with no liquid cash or assets to be used to buy down the mortgage.
Often, a homeowner will already be in the foreclosure process (several months behind in payment and notified by their lender that they are in default) when a short sale is considered. However, you don’t necessarily have to be behind in payments to initiate the short-sale process. In fact, as soon as you fear that you may not be able to sustain your payments, notify your lender.
The short sale process is not for the faint of heart. Your lender will require a laundry list of financial information at the onset, including a personal letter in which you detail your financial hardship, plus several months bank statements and paycheck stubs, tax returns and statements related to any other accounts detailing your financial assets (such as IRAs, stocks and bonds).
The Certified Distressed Property Expert designation, an in-depth educational course that focuses on teaching agents how to best help homeowners avoid foreclosure, was created by Alex & Cadey Charfen, founders of the Distressed Property Institute.
A Realtor who has completed CDPE training has made a concerted commitment to understand the complex issues that confront homeowners facing financial hardship, who are unable to continue making their mortgage payments and ultimately are facing foreclosure.
If you foresee such challenges in your own life, you aren’t alone! According to the National Association of Realtors, more than 45 percent of existing home sales in the fourth quarter of 2008 were foreclosures and short sales.
A short sale occurs when a home is sold for less than its current market value; to be completed, the seller’s lender(s) must agree to incur a financial loss on the sale. Unfortunately, although a short sale is typically a less financially damaging process for the homeowner, it is also a much more daunting process. One reason: With the dramatic nationwide increase in the mortgage default rate, lenders are currently overwhelmed with requests from borrowers to modify their mortgages or approve a short sale and are often slow to respond to those requests.
Also, many lending institutions are extremely short-staffed and may or may not have knowledgeable loss-mitigation departments, which can complicate the process. Finally, many are still creating a system to efficiently handle the onslaught of requests and, as a result, may be difficult to contact or deal with.
So it should come as no surprise to learn that only 12 percent of short sales nationwide are approved. On the other hand, among CDPE-designated Realtors, more than 80 percent of short sales are approved. That’s because we have the necessary tools and specialized knowledge required to navigate the process.
The CDPE designation has been endorsed by many major U.S. brokerages, including RE/MAX International. Numerous industry icons have also endorsed the CDPE, such as Howard Brinton, Bob Corcoran, Brian Buffini and David Knox.
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