You are ’short’ when you owe an amount on your property that when combined with closing costs and commission is higher than current market value.
For example, you owe $100K on your property and the property’s current market value is $105K. Assuming only 6% Realtor commission and 2% closing costs. You are still ‘short’ $3K. It is calculated as ($100K*108%-$105K).
In order to have a short sale approved, you have to either be in or be headed for foreclosure. This means that you have to have a valid financial hardship for why you can’t pay your mortgage.
Typically, if you have less than 3 months worth of your monthly short fall left in your bank accounts, then you are viewed as facing eminent default. I.e. you don’t have to be late yet on your mortgage before you can apply for a short sale.
For example, if your monthly total income is $2,000 and your monthly total expenses is $2,500, then you have a monthly short fall of $500. If you do not expect your financial situation to change in the near term and you have less than $1,500 in your bank accounts then you are facing eminent default. Assuming that you don’t have other assets that you can quickly convert into cash.
A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company or companies to accept less than the full balance of the loan at closing. A buyer close on the property and the property is ’sold short’. In a short sale, the homeowner’s mortgage company pays the agent’s commission and closing costs and not the homeowner.
A short sale is not a get out of jail free card, although it can be in select cases. It is important that you understand credit impact, deficiency judgments, and tax cancellation tax from the beginning so that you are not surprised later.
The short sale process is generally simply, however short sale execution can be both daunting and time consuming.
Did you know that nationwide short sale success is less than 15%? This is because most Realtors are unfamiliar with short sales and end up making many common short sale mistakes. Unlike most, Certified Distressed Property Expert designated Realtors have a success rate of more than 85%!
With your financial futures on the line, you need a specialist on your side. I urge you to contact MD Short Sale Real Estate today for a free short sale evaluation if you think short sale might be right for your situation. I will reach out to you right away to discuss your situation in strict confidence.
