Short Sales: A Rare, But Essential, Option for Homeowners
While the housing market is widely considered to have "bottomed out" in 2011, the need to deal with underwater homes and mortgages remains a pressing one for many families throughout the United States. Even though the real estate market is largely on the mend, and some home values are beginning to rise, they're aren't appreciating fast enough to erase the concerns associated with unbearably high mortgage payments on a property that has lost a significant amount of value.
Foreclosure and Short Sales: Solving an Underwater Home
To cope with underwater mortgages, and to regain some fiscal sanity, most homeowners will generally pursue one of two options: a short sale or a foreclosure. A foreclosure is sometimes termed "walking away," and it involves the home either selling at auction or becoming the property of the bank (REO) as they seek to recoup their losses. The family, of course, has to vacate the home as part of this process.
A short sale is a bit different, and it actually allows for the sale of the home to a buyer as a means of recovering the remaining balance. The sale price is put towards the outstanding mortgage, and the banks often write off any difference. This process is fraught with other concerns, however, such as legal ramifications and taxes on what might be considered "income" by a buyer when their debt is written off.
Before pursuing a short sale, be sure to contact a qualified real estate lawyer, as well as an accountant, to understand the quirks, considerations, and liabilities, associated with the process.
Short Sales in Coastal Delaware: An Uncommon Process
The coastal areas of Delaware, from Rehoboth Beach to Lewes and beyond, experienced a significant drop in property values since the bursting of the real estate bubble in 2007. Even so, the drop in property values found in Delaware's coastal communities was not as dramatic or as damaging as similar price drops in other coastal communities. This stability can be attributed to any number of things, including the fact that prices in coastal regions of Delaware did not inflate as much as in some other communities.
Even so, some homes were harder hit than others when the economy brought housing prices to record low levels nationwide. That has contributed to at least a few short sales in the area that actually increase the value for new buyers looking to relocate or move to a larger coastal home in Rehoboth Beach and beyond.
With the Pros and Cons Considered, Proceed to the Short Sale
One of the first things to consider about a short sale is that it may not be a very short procedure, nor one that is necessarily easy to accomplish. The bank responsible for managing the homeowner's mortgage must approve the short sale in order for it proceed, and that process has, at times, taken as long as a year…though very rarely these days.
Short sales can also have a slightly negative short-term impact on homeowners' credit. It's obviously a negative thing to be unable to pay the bills, and a short sale will moderately lower a consumer's credit score for at least two years after the process has completed.
Overall, a short sale represents a pretty positive outcome for homeowners who are in an unquestionably negative position. In order to pursue this process, those looking to escape from the burden of their underwater home should follow a few simple steps.
1. Call the Bank and Discuss the Short Sale
Homeowners in Rehoboth, Lewes, Dewey, and beyond, need to first call the bank that manages their mortgage and discuss the prospect of a short sale. The bank may not engage in short sales at all, or may be open to considering the process. This will indicate how to proceed with the sale, or whether to pursue other options.
2. Send a Letter of Authorization
A letter of authorization should be sent to the bank that will allow them to discuss the home's short sale process and its financial situation with other parties during the sale. This is especially true for homeowners who are utilizing the services of a real estate agent, a lawyer, or other professionals.
3. File a Preliminary Net Sheet
Homeowners should review their preliminary net sheet, which reviews the final sale price, closing costs, and other associated fees that pertain to the short sale.
4. File a Hardship Letter
A hardship letter essentially tells the bank why the short sale is necessary and how it would have a positive effect on the homeowner. This is a sob story, and more sobbing to the bank indicates a better chance of success for the homeowner.
5. Prove Assets and Income
Banks need an honest statement of the homeowner's assets and income before they can decide to approve or deny a short sale. Be honest, and understand that accuracy is the key to proceeding with this process.
6. Submit Bank Statement Copies
Bank statements must accompany the proof of assets from all institutions where the homeowner maintains accounts. This is often required, as it provides a source of accountability to the bank.
7. Submit a Comparative Market Analysis
The key to proving that a home is underwater and that its debt load simply cannot be paid off is in a comparative market analysis. Typically conducted by a realtor, this analysis will show that property values have plummeted and the financial obligations borne by the homeowner are too much to bear. Sometimes a formal appraisal may be required.
8. Submit a Purchase and Listing Agreement
After an offer is agreed to between the homeowner and a buyer, this agreement should be sent to the bank for review and processing. The short sale is now largely complete.
A Great Way to Escape From Underneath a Mountain of Debt
Short sales are not ideal, but neither is a home that is significantly underwater. If approved by the bank, the process allows for the best way to escape from a large debt that has become impossible to pay. Its impacts are minimal, and its benefits outweigh any negatives that might be associated with short sales in general.