Short Sales: Trading Scars for Safety

Let’s be real here. Having to let go of the home you’ve worked hard for isn’t easy. After spending blood, sweat, and tears for your dream home, it isn’t easy to accept that you might just be losing it. You probably even put off clicking on articles like these for a while now. But now that the situation’s getting worse and that time is starting to work against you and your family, it’s time to swallow that pride.

Sure, you’re going to let go of something “significantly significant” in your life, but that doesn’t mean that the rest of the things you care about have to be affected, right? With short sales, you could protect yourself and your family from having to go through an unmanageable debt that becomes even more unmanageable over time.

Rather than sinking with the ship, maybe it’s better to jump out with a few scars.

What is a Short Sale?

A short sale essentially means you’d be selling the home at an amount lower than what you owe on the mortgage. Yes, you’d be losing out, thus the name “short” sale. That’s what we mean by trading your scars for safety. You’d escape a fatal debt cycle but still get hit by a smaller one in return. In simpler terms, instead of failing to make payments and getting deeper in debt over time, why not pay for most of it and have a “relatively fixed” amount of debt to settle later on?

It’s important to note that this is an option available only for people experiencing financial hardship. If the banks think you can handle the debt, they won’t let you do it. Here are some of the reasons that you may be permitted to make a short sale:

1. Divorce
2. Medical Problems
3. Death of an income provider
4. Unemployment or Bankruptcy

Why would banks and lenders allow themselves to be at a loss? Aren’t they sharks that love to gobble up people’s money? Well, that’s the thing. As much as they like to receive money, financial institutions don’t want to give it to others as well. If time runs out and a homeowner faces foreclosure, where the lender would take the home away, the bank would have to go through tedious foreclosure shenanigans (legal stuff), take the property, maintain the property, and do extra work to sell it again. This costs a lot of time and money, which results in more loss than what they would have lost if the homeowner decides to go for a short sale. Everybody wins.

Why a Short Sale?

Foreclosure protection. To be blunt, foreclosures aren’t a good look. The raw smackdown on your credit can essentially remove a huge chunk of your buying power. And because the owed amount is lower with a short sale, the hit on your credit isn’t as bad.

Not only is it bad for you, but also for lenders! As mentioned earlier, they’d have to maintain the property and re-sell them. These properties are also usually stuck in the market for so long that your lender loses money from them!

Savings. With the first point, this should go without saying. But there’s also a little more to it. In addition to avoiding an absurd number of fees and costs in a foreclosure (defaults, late fees, legal fees, etc.), there is less likelihood of you falling into bankruptcy. This is a massive advantage in cases of losing an income source or unemployment.

Helps real estate agents and investors. No one wants to have to go through this, but life just happens. Short sales present a win-win situation for both you and your agent. Instead of possibly looking at it as them taking advantage of your situation, look at it as more of helping them help you.

Fewer risks with scammers. Speaking of people who may take advantage of you, there are those who would target people facing foreclosures with lies to “save” their home. Instead, they would sip on their victims’ remaining resources until they’re dry. This leaves them without homes and resources. Thus, going for a short sale (instead of waiting for foreclosure) reduces that risk.

While we say all of that, it’s good to note that a short sale isn’t the only solution out of foreclosure (as we’ve talked about in another article). There are ways to argue for lower rates and lower payments. However, those solutions are not for everyone. With a significant loss of funds such as unemployment or divorce, having to extend your suffering by crawling through monthly payments may only be a band-aid to a symptom of a more complicated issue.

Why NOT a short sale?

We’ve painted short sales in such a good light that we’re afraid that you might think it’s too good to be true. Well, here are some reasons why you might want to avoid it.

An extensive timeline. In addition to finding a buyer, there’d be multiple back-and-forth conversations between the seller (that’s you) and the bank. And you know how banks love to take their time for everything, right? Because of this, it could take you three to four months on average to complete it.

It can be confusingly complicated. Because there are multiple factors at play here (you, the agent, the lender, the buyer, etc.), you may be unaware of certain legal blind spots. To make sure that you’re making the most out of the law to your advantage (and protecting yourself from opportunists), try to secure a budget for a lawyer that specializes in short sales.

If you’re reading this before needing to go for a short sale, you might want to look into working with an investor. If you’re not familiar with real estate investors, they’re people who’d buy your home in an “as-is” condition. Usually, the renovations needed to sell homes at a reasonable price adds to the length of time it takes to close a sale, not to mention finding someone interested in buying! This would likely mean a lower price tag, but do you really want to wait longer for a few extra thousand dollars?

If you’re interested, you can give us, Shorefront Investments, a shot! You can give us a call at (850) 713-4866, send us an email, or fill a form on our front page.