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If you haven’t heard yet, most banks today are foregoing foreclosure efforts in favor of short sales. Simply put, they have finally figured out that a short sale is actually more beneficial to their bottom-line than foreclosing on a property owner. This is important to know for those people who still find themselves “under-water”. That figure still comprises over 25% of California home-owners.
How do you know if a short sale is the right strategy to pursue? There are many factors involved. First, ask yourself if you need to leave your house now or can you “wait out the storm”. If you don’t need to sell your house, then why damage your credit for 3-7 years (depending on your FICO score). The answer to this question is dependent upon your circumstances and your goals over the next many years.
Even if you want to leave your house, it is important to recognize that banks will only approve a short sale if the owner can show a hardship, which includes:
- Unemployment, loss of hours or under-employed
- 50+ mile job relocation
- Business failure
- Medical losses
- Divorce or death of spouse
- Increased mortgage payments
The bank will also want to know if you have considered other options, such as refinance, lender workout, forbearance, loan modification and rent it.
If you meet the criteria above, a short sale may be the right strategy for you. If that is the case, be prepared for a tedious process that can easily take 60-90 days or more. The length of time required to complete this process depends on the financial institution(s) involved and the complexity of your situation (ie number of junior liens, if any). I highly recommend you do your due diligence to work with a real estate agent that specializes in short sales and has done many in the last 12 months (at least 10). An experienced agent will help make an otherwise painful process go relatively smooth and fast (not typically terms associated with the short sale process).
