Short sale?

[jpcher]

Silly question -- what is a short sale?

[JenJay]

It's when your mortgage on a home is more than the home's current value. When you sell it you come up short. 

[jpcher]

It's when your mortgage on a home is more than the home's current value. When you sell it you come up short. 

Oh. Okay. Thanks . . . but when you buy it are you purchasing at current value?

And, then, does the current homeowner still owe gobs of money?

[JenJay]

It's when your mortgage on a home is more than the home's current value. When you sell it you come up short. 

Oh. Okay. Thanks . . . but when you buy it are you purchasing at current value?

And, then, does the current homeowner still owe gobs of money?

The buyer pays current value, the seller walks away with bruised credit, and the bank takes the loss which is why they have the final say. It used to be that the difference was considered "forgiven debt" and taxed as income but when short sales and foreclosures started happening more frequently a few years ago that was amended (temporarily) so that doesn't happen now. I believe this was in conjunction with part of the bank bailouts so that the banks did recoup that money, just not from the seller. That's how our real estate agent explained it, anyway.

[Piratelvr1121]

A friend is having to do a short sale due to getting a divorce.  Her stbx is supposed to move out soon, in the next month or so but he's delusional and seems to think they can still make it work so poor woman's going to have a hard time making him move out.  (neither of them can really afford to get an apartment and pay mortgage on the house). 

I think she put the house on sale early in the fall and no one's even showed interest. I even gave her a St. Joseph Home Selling Kit cause hey, can't hurt, right? She said she might take it off the market and try again or just get a roommate. 

[MrsCrazyPete]

We bought a short sale just over a year ago. We found the house in May, offered the asking price, and finally closed just before Labor Day. Our realtor was super helpful and kept us very updated. She said our experience was pretty standard, although to us it felt like forever! We had to keep faxing tons of paperwork to different places and wait for new people to sign off on it.

In the end we got a great house for a great price in the exact area we wanted so it was worth it. If you don't mind the wait then it's a good idea to go for it.

[jaxsue]

I looked at a few short sales when I was house hunting 1.5 yrs ago. Pure frustration. I'd have an appt to see a house (the drive between my apt and prospective town was over an hr each way), only to find out that the owners had changed their minds and wouldn't let me in.

After several months of this and other frustrations, I gave up. Turned out for the best, though. I ended up buying a house that I adore in the neighborhood I wanted!

Edited to add: if you have time and lots of patience, then a short sale might be worth going for. I have to stress, LOTS of patience! It's often not the owners who make it difficult, but the banks.

[Piratelvr1121]

My friend who's doing a short sale has been having trouble trying to sell her house and says people come in and complain about the color of the walls (um, that can be changed, folks) or the carpet (which is clean, we've been to their house many times and it's very well kept) which could also be changed.

[MommyPenguin]

The short sale we were looking at is still on the market, price slowly dropping.  My husband says the original asking price when we first saw it was *way* too high for the house's value.  The price still needs to drop a good way before the house will be priced at a level that my husband thinks is worth it.

[JenJay]

The short sale we were looking at is still on the market, price slowly dropping.  My husband says the original asking price when we first saw it was *way* too high for the house's value.  The price still needs to drop a good way before the house will be priced at a level that my husband thinks is worth it.

The bank usually requires the seller to initially list it for what is still owed and then slowly whittle it down to market value. If I recall correctly we had to leave ours listed at the higher price for 2 full months before we could drop it $10k, then we were able to drop it in $10k incriments every 2 weeks until it got down to fair market value. It was incredibly frustrating, as we'd had an assessment done just 6 months prior to the move (before DH applied for the promotion/transfer) and we were tight but okay. It dropped very suddenly between then and when he was selected. Go figure. 

[MommyPenguin]

That looks similar to the pattern we're seeing, but with a slightly faster rate.  It's dropped 60k so far at about 10k every 3 weeks.  Still got another 40k to go untili it's what my husband says he thinks it's worth, though.  And it's about 80k above assessed value.  (Expensive area.)

[stitchygreyanonymouse]

It's when your mortgage on a home is more than the home's current value. When you sell it you come up short. 

Oh. Okay. Thanks . . . but when you buy it are you purchasing at current value?

And, then, does the current homeowner still owe gobs of money?

The buyer pays current value, the seller walks away with bruised credit, and the bank takes the loss which is why they have the final say. It used to be that the difference was considered "forgiven debt" and taxed as income but when short sales and foreclosures started happening more frequently a few years ago that was amended (temporarily) so that doesn't happen now. I believe this was in conjunction with part of the bank bailouts so that the banks did recoup that money, just not from the seller. That's how our real estate agent explained it, anyway.

Depending on how short the short sale is, the seller does come away with some debt on occasion.

My friend went through it when she divorced. Because of the divorce agreement, she and her XH had to split the debt evenly, but he has a very minuscule (sometimes non-existent) income, so that made the sale even more difficult, because to get it to a reasonable market value sale, the bank wasn’t willing to lose that much, and the XH wasn’t willing to take on his share of the debt. It took over a year of being on the market, dropping the price as the bank would allow, and his finally agreeing to cover his half of the debt before they sold… then it took about 6 months to actually have the sale go through.

[jaxsue]

My friend who's doing a short sale has been having trouble trying to sell her house and says people come in and complain about the color of the walls (um, that can be changed, folks) or the carpet (which is clean, we've been to their house many times and it's very well kept) which could also be changed.

That ridiculous.

I look at the big picture like location, does it have "good bones," etc. Walls and floors can be changed.

[JenJay]

It's when your mortgage on a home is more than the home's current value. When you sell it you come up short. 

Oh. Okay. Thanks . . . but when you buy it are you purchasing at current value?

And, then, does the current homeowner still owe gobs of money?

The buyer pays current value, the seller walks away with bruised credit, and the bank takes the loss which is why they have the final say. It used to be that the difference was considered "forgiven debt" and taxed as income but when short sales and foreclosures started happening more frequently a few years ago that was amended (temporarily) so that doesn't happen now. I believe this was in conjunction with part of the bank bailouts so that the banks did recoup that money, just not from the seller. That's how our real estate agent explained it, anyway.

Depending on how short the short sale is, the seller does come away with some debt on occasion.

My friend went through it when she divorced. Because of the divorce agreement, she and her XH had to split the debt evenly, but he has a very minuscule (sometimes non-existent) income, so that made the sale even more difficult, because to get it to a reasonable market value sale, the bank wasn’t willing to lose that much, and the XH wasn’t willing to take on his share of the debt. It took over a year of being on the market, dropping the price as the bank would allow, and his finally agreeing to cover his half of the debt before they sold… then it took about 6 months to actually have the sale go through.

They may have agreed to cover the debt so as not to have their credit completely ruined (ours dropped from the high 830s to about 550!! Fortunately it's back up to about 750 and climbing) or it may have been before the bank bailout/non-taxed forgiveness of debt thing. It's been just over a year since we closed and, if I recall what my agent said, the tax amendment was for years 2007-2012 and then due to expire. Possibly it varies by state, which really stinks for people in those states. 

I just did some googling and it looks like it has been extended until 12/31/13
http://www.huffingtonpost.com/mobileweb/anna-cuevas/mortgage-debt-relief-act_b_2427431.html

[AfleetAlex]

For those of you who have been through this, can you provide some additional perspective?

- When I first spotted the house online, it was listed as a short sale. However, I found out after expressing interest that (apparently) the owners had listed it as a short sale before the bank approved a short sale. The bank tried to do loan modification with the couple, which added to the delay. As they're obviously not moving back in, it sounds like we're past that part. And as far as I'm aware, I'm the first and only offer on the house, as the listing was removed (from online) after the sellers accepted my offer. Any thoughts on what this means for me?

- I have not been asked to do anything other than provide a letter from my mortgage company/credit union about what I could afford. Should I have been asked for more materials by now?

- The mortgage company/credit union contact provided the letter saying I could afford about $2,000 more than I offered for the house (which was about $7,000 below asking). However, I do have more wiggle room than that (and my realtor says that's 'part of the game' so to speak). Will that help or hurt me when it comes to the sellers' bank?