6 Myths About Short Sales

By now most people have heard the term short sale, whether through their own experience or someone they know or perhaps what they have heard on the evening news. Short sales are a very real part of our real estate market – for good or bad. As we move into the next phase of market correction, short sales will become an even more vital part of the recovery process. Before you decide if a short sale is good or bad, you should know the facts. Here are the 6 myths about short sales:

Myth 1: You must be behind on your mortgage to qualify for a short sale
Mortgage lenders look for three things when considering a short sale approval:

  • Verifiable hardship, such as a job loss, cut in pay, a forced job transfer, divorce or serious illness
  • A monthly cash-flow shortfall or pending shortfall and insolvency
  • Lack of liquid assets that would allow you to pay down your mortgage

Distressed homeowners often wait too long before they ask for help. They should consult with a qualified agent before burning through savings or trying such desperate measures as using a credit card to cover mortgage payments.

Myth 2: Short sales rarely get approved
Banks now have the resources in place and have shifted their focus to processing as many short sales as possible. Banks want to avoid foreclosing at all costs. Short sales are getting easier to push through and 2012 is setting up to be the year of the short sale. We have about an 85 percent success rate for closing short sales but they still take patience, requiring anywhere from 30 to 120 days for lender approval.

Myth 3: Banks would rather foreclosure than approve a short sale
Banks typically lose 35 percent more on a foreclosure than a short sale. They also avoid the hassle and liability of vacant properties if they can approve a sale before foreclosure.

Myth 4: Anyone can help navigate a short sale
The Russo Team suggests homeowners find a real estate agent with special training in handling distressed properties. Look for an agent that is a Certified Distressed Property Expert (CDPE). The Russo Team has the CDPE Designation.

Myth 5: A short sale is not worth the effort
For home buyers, short sale properties are often in better shape than foreclosures and are priced to sell quickly. For sellers, there is no lasting stigma for completing a short sale. On top of that, now there are Government programs offering cash incentives up to $4500 to homeowners for their cooperation in selling the property by way of a short sale rather than letting it go into foreclosure. 

Myth 6: Short sales are as financially damaging as foreclosures
Unlike foreclosures, short sales are not reported on a person's credit history and don't present problems with employment or security clearances. Homeowners who undergo a foreclosure are ineligible for a Fannie Mae-backed mortgage for seven years, while a homeowner who sells as a short sale, will be eligible for a Fannie Mae backed mortgage after only two years.