Short Sales Becoming More Common Every Day
Only a couple years ago, hardly anyone had heard the term Short Sale. Nowadays short sales are as common as mortgages, and becoming more prevalent every day.
The concept, which involves selling a house for less than the current mortgage amount, has grown in popularity as a convenient exit strategy for homeowners facing foreclosure. The reasoning is simply: A Short Sale doesn’t hurt credit ratings as much as a Foreclosure!
However, just because a short sale is more desirable than going into foreclosure, doesn’t mean the process is easy or even possible for everyone. Many inexperienced homeowners are frustrated by the short sale process because they get denied by their lender and aren’t sure why or how to proceed.
Thankfully, the government is aware of the frustrations. In May, Treasury Secretary Tim Geithner announced plans to improve the short sale process by offering financial incentives to mortgage servicers and investors that accept short sales, in very much the same way that they are rewarded for refinancing or modifying existing loans.
Unfortunately, four months later, nobody knows how this new plan is supposed to work. Although the government recently announced that an update on the program is expected in a few weeks.
During the second quarter of 2009, 14 percent of all home sales were short sales and they were made primarily to first-time buyers who may have more flexibility to deal with the long wait times, according to a recent survey by Campbell Communications. But still…two out of three short sales never close.
The short sale approval process involves a packet of documents that include:
- Bank statements
- Tax returns
- A letter explaining other income sources
- A letter explaining why a short sale is necessary (ie. recently lost job, injury, divorce, etc.)
After the documents are submitted to a mortgage adjuster, they must be entered into the system, an individual has to be assigned to the case, and an appraisal must be ordered for the house. On average, it takes loan servicers nearly 10 weeks to respond to a short sale offer, the Campbell survey discovered.
Until the government unfolds their new program aimed at improving the short sale process, it’s doubtful that things will change. If you’re a homeowner considering a short sale, your best bet is to solicit help from a professional, who has navigated the process many times before and knows all the loopholes and short cuts.
