What is a Short Sale?
A short-sale occurs when the borrower (seller) owes more on the mortgage than the home will sell for based on current market value. When the home is sold, the mortgage holder (bank) gets less on the pay-off than the mortgage amount, therefore the pay-off is “short.”
Due to the steep decrease in property values in the Arizona real estate market over the past few years, most borrowers who originated a mortgage since 2005 owe more on their property than it will bring in today’s market. Thus, a large percentage of real estate sales in Arizona, especially the Phoenix market, are short-sales.
GENERALLY speaking, there is no cost to the seller in a short-sale transaction. This will depend on the individual lender. The bank pays the costs of selling the home, including real estate commission fees, closing costs for the seller and up to 3% of the sales price in incentives if the buyer and seller agree to that in the purchase contract. What the bank will not pay for are upgrades, repairs, or replacements, such as flooring and paint. Short-sales are generally sold “AS-IS.”
In most cases the bank will require that the seller have a legitimate “hardship” in order to approve the short-sale. Legitimate hardships include such things as; the inability to continue to make the house payment due to job loss or a significant cut in earnings, medical problems, death of a spouse, or a job transfer out of town/state, just to name a few. In addition to having a true hardship, the bank will require that the seller provide a “Hardship Statement,” a letter explaining your situation in detail, in addition to financial documents, including bank statements, taxes, income, etc… The process is time consuming and requires the commitment of the seller, as well as the REALTOR® working on your behalf.
The time it takes to bring your short-sale transaction to a successful closing is hard to predict, as it depends on the bank’s processes, your timeliness in getting the bank the documents they need and how long it takes to get a purchase contract on your home. This is where having an experienced short-sale real estate agent makes a huge difference! It is a good idea to ensure that your agent has had many successful short-sale transactions. Ask what their experience is with the bank you have your mortgage with. Ask agents you interview what kinds of special training they have had and if they have designations specific to short-sales. This does not make them “experts,” however, experience speaks for itself.
You can obtain important information and warnings about short-sale scams by going to the website of the Arizona Department of Real Estate (ADRE) and obtaining the Seller Short-Sale Advisory. ADRE cautions against paying anyone an upfront fee to negotiate your short-sale. This is a service you receive from your REALTOR® or you may elect to have an attorney negotiate on your behalf. Either way, all sellers should seek legal guidance before entering into an agreement to negotiate or sell their home as a short-sale. Short-sale is not always your best option, a decision a qualified attorney will help you determine.
Helpful information for anyone considering a short sale in Arizona: