Short Sales On The Rise

An often misunderstood transaction in today's real estate market is the "Short Sale". A short sale is when a lender or lenders agree to accept less than the amount currently owed by the homeowner.

If owners purchased their homes at the height of the market, or refinanced recently, they may now find that they owe more on their home than what its current market value is. The coupling of the current economic crisis and the drop in home values over the past couple of years is causing this increase in short sales and foreclosures.

Often a short sale will cost the lender less than a foreclosure, so it can be a good way for lenders to minimize their risks. For current owners, a short sale may not hurt their credit history as much as a foreclosure, and thus allows them to get back on their feet a little quicker.

To qualify for a short sale, the current owner will need to demonstrate financial hardship. Most qualify on the basis of employment issues (IE: they have lost their jobs, had reduced hours, or were required to relocate to another state for employment). However there can be circumstances where health dictates that a person must move out of their home (IE: unable to use stairs). Owners are surprised to learn that they can qualify for a short sale, and still keep their payments current.

Because unemployment continues to hover at high rates, the expectation is that short sales will continue to rise. Recognizing this, the federal government has designed programs for homeowners facing this process. On April 5, 2010, the US government will implement the Home Affordable Foreclosure Alternatives Program. This will help simplify and streamline the use of short sales and deeds-in-lieu of foreclosures.

It is important that buyers and sellers use Realtors with experience to assist them in navigating the challenges of short sales. We did our first short sale in 2005, so we have witnessed first hand the many changes that the short sale process has undergone. An experienced realtor will help prepare clients for the short sale process and guide them thru this difficult period.