Underwater? What you need know about Short Sales

The USA Today, a national newspaper, ran a front page article in July 2005 declaring Gilbert,  Arizona the fastest growing city in the nation. It was as if someone flipped a switch and turned on the housing market in Phoenix. A major frenzy ensued for about the following 18 months driving home prices higher at a fever pitch. Home prices doubled in many Phoenix neighborhoods. Then the bubble burst. By the start of 2011 all of the value gains had evaporated and most Phoenix area communities were back to the prices of the early 2000′s.

It is estimated that at the bottom of the market (late 2010-early 2011) greater than 50% of Arizona homeowners were underwater meaning they owed more than their home was worth.

Fast growing areas of the country like Arizona, Nevada and Florida were the fastest appreciating areas during the housing boom. They were also among the hardest hit by the housing downturn. Out of the rubble of the bursting of the bubble was born the Short Sale.

A short sale occurs when a lender agrees to take a short payoff when a mortgaged home is sold. In layman’s terms the bank is taking less than the principal balance owed. Banks have sophisticated methods for calculating a fairly accurate cash net they would receive if they opt to foreclose on a property. Basically, if a short sale nets them more they’ll agree. Of course its not that simple because banks have a knack for complicating things and there are a few other criteria for approval. An example is the borrower must show a hardship. There are a number of other things that can go wrong also but, in the big scheme of things, get the bank their net and avoid the pitfalls and you’ll likely succeed.

Why would someone do a short sale? Limiting damage to a person’s credit rating is the main reason. But there are others, too. Recent legislation allows for some homeowners to get some cash from the transaction, up to a few thousand dollars. There is also pride. The stigma of attaching foreclosure to your credit rating is hard to swallow. A short sale will certainly be easier and faster to overcome from a credit rating standpoint than a foreclosure which is the worst derogatory mark you can get. It’s actually much easier to overcome a Bankruptcy than a foreclosure. A short sale will show on your report as a debt settled for less than owed. With a solid credit rebuilding strategy a borrower may be able to qualify for a new mortgage in as little as two years. Nationally the estimates are as high as 40% of homeowners are upside down on their home mortgage. The economy is still sluggish and housing is still a drag on it. Until a huge percentage of those homes are sold and the banks are out from under them housing will remain a drag on the economy. Those numbers must improve before we’ll see a full recovery and a return to economic prosperity. In many ways those who short sale are actually helping with the recovery. If you are upside down on your mortgage it may take decades to get back to even. So it may be better to swallow your pride get out from under your alligator and start fresh. In a couple years you may be able to buy at the lower prices and take advantage of better rates.

Not all Realtors are created equal. Many agents are not educated on how to properly process a short sale transaction. Mistakes can cause failure on an otherwise doable deal. Our team has an enormous amount of experience and a nearly unrivalled success record for closing short sales. We have a very unique system and process that translates to success for our clients.  We’re experts at rebuilding strategy. We’ll do more to help you with a strategy for rebuilding and stay in touch with followup reminders to keep you on track. We’ll be there until you are a happy homeowner once again.

If you have questions about short sales, whether a short sale is the best option for you or just want to hear about our proven system contact me today. I’m always eager to help!

Charlie Walters

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