By now I am sure that some of you have become familiar with the term “short sale." This is a new term in the real estate world that started sporadically being used about 4 years ago. Now the term is widely used and simply put, it is the last phase before a home goes to foreclosure. 

When the mortgage meltdown took place about 3 years ago, homeowners were realizing they could no longer afford the mortgage payments. When that happens, there was traditionally only one option and that was to foreclose.

But nowadays, short sale is the new option and banks grant short sales for 2 reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth. Unemployment, reduced income, divorce, medical emergency, job transfer out of town, bankruptcy, and  even death, can be some of the hardships which force owners to consider the short sale option.

In a short sale, the bank has agreed to let the house sell for less than what is owed on the home. For example, if an owner purchased a home  in 2001 for 400k and took out a 380k loan to purchase the house, but now the home can sell for only 320k, the bank would have to be willing to take a 60k loss if approved for a short sale.

Now you might ask why the bank would be willing to do that. Simply put, the banks find it in their best interest to unload these homes as fast a possible rather than have them go through the foreclosure process which takes much longer.

Many times the owners will still be living in the home and it makes a much more sellable scenario than a vacant foreclosed home has been winterized, with plumbing and heating turned off. It becomes an added expense and liability for the banks to manage and hold these foreclosed homes. Short sale speeds up the process. It is also gentler on the owner as it will not damage their credit and financial picture as much as a foreclosure would.

It is a rigorous process for the seller, and they will need to prepare a financial package for submission to the short sale bank. Each bank has its own guidelines the basic procedure is similar from bank to bank. The seller's short sale package will most likely consist of:

• Letter of authorization, which lets your agent speak to the bank.
• HUD-1 or preliminary net sheet
• Completed financial statement
• Seller's hardship letter
• Two years of tax returns
• Two years of W-2s
• Recent payroll stubs
• Last two months of bank statements
• Comparative market analysis or list of recent comparable sales

Although the bank would like to receive somewhat close to market value, in many instances, the short sale price may have little bearing on market value and may, in fact, be priced below the comparable sales to encourage multiple offers and a quick sale.

A buyer in today’s market could get a good deal with a short sale but would have to be very patient as the process to buy one can be just as arduous as the seller’s process.

A buyer can go to contract on a short sale and then have to wait in some cases anywhere from 2 to 5 months to get the final sale approval. That is a long time to hold up your money in contract and not even know if you will get the house. But he who waits can really score a deal.

Following is a typical short sale process at the bank:

• Bank acknowledges receipt of the file. This can take 10 days to a month.
• A negotiator is assigned. This can take 30 to 60 days.
• A broker price opinion or BPO is ordered. 
• A second negotiator may be assigned. This can take another 30 days.
• The file is sent for review and this can take two weeks to 30 days.
• The bank may then request that all parties sign an Arm’s-Length Affidavit.
• The bank issues a short sale approval letter.

According to the Multiple Listing Service, in the Massapequas there is currently a very small percentage of homes that are available short sales in school district 23 and 18 .Out of 294 homes on the market, only 13 of them are short sales. I view that as very good news. Although times are tough, our town shows clear signs of stability, and most of the population is able to meet the financial commitments of home ownership. That is good for business, good for family life, and good for the aesthetic look of our communities here in the Massapequas!

Your questions and comments are always welcome. Email me at Succosorealty@aol.com