If it is called a short sale, then why does it take so long? Part 1

This is a commonly asked question that most homebuyers stuck in the roulette wheel of a short sale ask. Five years ago, most people, including Realtors in the Austin area may have never even heard the term “short sale”, but today, it is as common a real estate term as foreclosure or bank-owned. It is difficult to understand all of the inner complexities of why a lender would choose to sell a property for less than what they are owed, but a simple explanation would be that a lender may be motivated to take a short sale loss, if they know that that loss is ultimately going to be covered by the government with one of the federally backed programs such as FHA or VA. If the home is located in an area with many foreclosures, where the lender may not be able to recover all of the costs associated with foreclosing on a property, the lender would rather sell the property short of what they are owed and cut their losses rather than gamble that there may or may not be a buyer for that particular property down the road.
So the next question might be who qualifies to “short sell” their home? Though are various reasons, the most common is:

Seller is financially strapped

- May have lost their job or a significant decrease in income
- Might be a divorce situation
- May be due to poor health and/or medical bills
- Must move due to job transfer or some other reason and cannot make up the difference between what his house can sell for and the higher amount that he owes
- Death in the family
- Many other reasons …..

Loss of equity is NOT a valid cause for a short sale

In order for the home seller to qualify for the short sale process, they basically have to go through the process of applying for a mortgage in reverse. Whereas when a borrower is trying to prove their financial worthiness to obtain a loan, a short sale seller is trying to prove to the lender that they are no longer financially capable of owning the home. Of course, if the home seller made fraudulent statements on their original loan application, all bets are off and the home seller may be liable for damages. In some cases, home sellers involved in a short sale may be encouraged to speak to a tax specialist or attorney in discussing some of the possible legal and tax liabilities that may result in the short sale of a property. All in all, it is not an easy process.

So what can a home buyer looking at possibly purchasing a short sale expect? In my next blog, I’ll describe the hurdles that the typical short sale home buyer can expect during their short sale purchase. Visit my Austin Short Sales page for more information.