Short Selling Of Homes
Here’s another topic I’d have sworn I’d written about, which I’m now realizing I haven’t, and it’s important enough to bring up for those folks who might be thinking about it.
In general, short selling is the act of selling one’s home for less than what it’s worth. There are a few reasons one might want to do something like this.
First, couples that are divorcing and want to get out from a joint obligation will sometimes do this. For years, this was the most common reason for short selling.
Second, someone who decides they just don’t want the house anymore, possibly because someone passed away and they want to leave. Many times it’s other family members who have inherited a house that will want to short sell it to try to get out from under the obligation.
These days, more people are thinking about short selling their homes because they find themselves unable to keep up with the payments, or because the worth of their homes has deteriorated because of the terrible housing market. Though this isn’t in effect everywhere, states like Florida and California and Arizona have seen many homes and communities lose at least 50% of their worth if not more. Oddly enough, in some of these cases, the amount of monthly mortgage payments they were making has gone up, not down, while property taxes have remained high because communities are reluctant to do new assessments for fear of losing tax money.
Add to this the lousy job market, and the possibility of more job losses coming, and it’s a scary proposition all around.
Many of these people find themselves with two choices; foreclosure or short selling. Neither one of these is a great option, and offers something different for homeowners to consider.
For instance, if you’re in a bad way, but you really believe that your finances will take a turn for the better, going through the foreclosure process might be the way to go. Foreclosure takes a long time before banks can force people out of their homes, and if you suddenly are able to pay your mortgage again, you can make those payments and the foreclosure process stops. Sure, it hits your credit report, but you at least have your home again and can always write an explanation of why you went through the process.
However, if you don’t see a way out of it, short selling might give you some kind of chance. If you can short sell your home close to what’s owed, the bank might accept that as payment in full and you get to walk away from your home without a scratch. The bank might not even file anything with the credit reporting companies. If you have to set payment arrangements with the bank for the difference, though, or just walk away without even thinking about making those payments for the difference, it will hit your credit report. Depending on how much you still care about credit reports and credit scores, as much as I talk against them, is another matter, but having a short sale on your report is almost as bad as having a foreclosure on there. The difference is that a foreclosure will stay there for 10 years; time varies for short sales.
Of course, that’s if you can sell your home in the first place. Many other homes in the neighborhood would have probably already been foreclosed upon or given up, which means you’d be competing in price with those homes. What might be in the favor of someone still in the home is the perception that the home will be better maintained than a home that was given up. It’s amazing the type of anger that’s been shown by some of these people who have left some pretty magnificent homes.
And one other thing; many real estate people are just getting their hands around what short selling is all about. When you may have had one every couple of years and suddenly you’re getting 20 a month, the process can be scary to agents as well. So, you’ll have to shop around for the right person to help you in short selling your home. Don’t even waste time trying to do it as a FSBO.
And that’s a quick primer on short selling. Good luck; I personally hope no one has to go through it.