While short sales are a great way to avoid foreclosure, there are potential issues that can occur throughout the process. In order to ensure you are prepared, it’s best to understand the possible issues that you could face with a short sale. Below you will find the most common short sale problems.
Short Sale Process
The short sale process occurs when a homeowner can no longer pay their mortgage due to financial issues. The process includes the original homeowner, a new buyer, and the original homeowner’s mortgage lender. A short sale involves the original homeowner selling their home for less than the amount owed to their lender. The money from the new buyer is given directly to the lender. Because the home was sold for less than the original homeowner owed on the mortgage, the lender can either (1) forgive the remaining balance on the home, or (2) file a deficiency judgment requiring the original owner to pay all or some of the difference.
It is clear that this arrangement is less than ideal for mortgage lenders as they often get less than the total mortgage amount. However, it’s preferred as compared to foreclosure. This is because (in many states) the original homeowner is not obligated to pay anything to the lender after their home has been foreclosed and sold at a foreclosure sale. Foreclosure sales can be less lucrative than a short sale for mortgage lenders.
Common Short Sale Problems
Despite the benefits of a short sale as compared to foreclosure for all of the parties involved, there are potential issues that can arise throughout the process.
Lender Agreement:
You don’t have the right to short sell your home. So you have to get the lender to agree to a short sale. Because lenders want payment in full, they typically will not to agree to a short sale right away. However, taking certain factors into consideration they will likely agree to a short sale if the agreement is reasonable. Factors such as your hardship, assets, income, home appraisal value, and the reasonableness of an offer are all considered. Because buyers want to take advantage of short-sellers, they often provide lowball offers. However, your lender can come back with a significantly higher offer which can slow down the whole short sale process.
Deficiency Judgments:
As briefly discussed above, lenders have two options after a short sale. They can either forgive the remaining balance on the home or file a deficiency judgement requiring the original owner to pay all or some of the difference. Many states have enacted laws that prevent the original homeowner from having to pay a deficiency judgement after foreclosure. Still, the same is not true for short sales. Therefore, you could end up with a hefty bill after your short sale to make up the difference owed. This is a crucial step to understand before moving forward with the short sale process as you may be financially liable depending on the agreement.
Documentation Issues:
One of the common reasons short sales fail to close is due to documentation issues. Things that can cause major issues during the short sale process include:
- Missing documents
- Issues with timing
- Unsigned documents
- Incorrectly dated documents
Short sales require a lot of documentation between three key players, the original homeowner, the lender, and the new buyer. Staying on top of all of the documentation, and getting everything done on time, is necessary for the process to run smoothly.
LA Short Sale Realtors
If you are involved in the short sale process, having expert professionals on your side can make a huge difference. Apex Resolution can provide short sales help for realtors to ensure the process goes smoothly. LA short sale realtors can utilize the experts at Apex Resolution for a variety of services.