Columbus Real Estate, The Short Sale Market

Ohio is the second highest ranked state for foreclosures. This is not a fact I care to brag about… How did this happen?

Many answers:

• Predatory lending - lending to people who did not truly qualify.
• Over valuating homes (appraisers and mortgage lenders in cahoots on this?)
• No money down loans - no equity. Lending more than the home is worth.
• Adjustable rate mortgages that go up more than the buyers were qualified for.

With the “bubble bursting” and people not being able to make their payments, houses are being abandoned and foreclosed on. This hurts everyone!

So what is a SHORT SALE that we are hearing so much about?

It is a very very long process (who named this SHORT?) in which the lender(s) have to agree to take a loss on the loan. In other words, more is owed on the property than a sale can procure. If there is a first and a second mortgage, both lenders must agree. Usually the second lender gets the worst end of this deal. When people refinanced, they most likely took “cash out” because they were appraised higher than the true sale value of their home.

People get behind in their payments for various reasons and cannot sell their home for what they owe. To avoid foreclosure, the sellers’ put the home up for sale with an agent who begins a long process of paperwork in accordance with the lender. The sellers must approve the contract price/offer first and then the lender(s) must also approve. This takes several weeks to get answers from lenders in the best of scenarios. There is a net loss that is calculated. After commissions and fees (which are reduced), home warranty (sometimes this is allowed), repairs, etc..a BPO (brokers’ opinion on how much the house is worth and can sell for). This is a competitive market analysis proving what homes have sold for in the neighborhood in what condition, etc…

Once everything comes together..and it often does not for many frustrating reasons…time lines for one….there will be a deficit of what is owed and what the deal will bring in. The Sellers are not forgiven this amount. Often this goes on their credit report as owing that amount. However, it beats having a home foreclosed on your record.

These homes often need repairs. When owners run out of money, the last thing they do is keep up or make repairs. There are often liens that have to be paid off…again, the owners did not pay mechanics, taxes, credit cards can be attached to the home. These must be cleared up before a free and clear title can be passed. Often there is a deal to be had in a short sale. But it is completely a “buyer beware”, a roller coaster of emotions, and anything but short.

Bottom line….be responsible when getting a mortgage. Ask the right questions, use a professional Realtor, know what you can afford. Lenders and appraisers have tighter laws now to help people from getting in trouble so easily….hindsight is 20/20!