In some areas, short sales are increasingly harder to get approved, while in others they are said to be on the increase. Even if you decide a short sale would work best for you, there’s no certainty that you will be able to make it work.
As you might guess, a lot of people are trying to negotiate short sales now. Many lenders have apparently not greatly increased their personnel or streamlined their decision-making processes to keep up with the increased volume of homeowners seeking short sales. And even for those lenders that have, short sale negotiations still often occur in a rushed setting because many homeowners start thinking about short sales only when their homes are about to be sold at a foreclosure auction.
You also need to have a bona fide offer from a buyer before you can find out whether or not your lender will go along with the short sale. In a market where sales are hard to come by, this can get frustrating because you won’t know in advance what your lender will settle for.
Short sales are also difficult to complete if there are investors in the picture who might not approve of getting less of a return on their investment than they were counting on.
A short sale will benefit you only if your lender is willing to accept the amount a buyer is willing to pay and let you off the hook for the rest. For example, if you owe $300,000 and you can sell your house for just $200,000, your lender is unlikely to approve the short sale and accept a loss of $100,000. There’s a chance, though—your lender might decide that even a 33% loss on the short sale is better than what could happen in a foreclosure, where houses can sit vacant for months and rapidly depreciate in value before being bought by a new owner.
Clearly, the closer the offer is to the principal balance of your mortgage loan, the quicker your lender will sign off on the short sale. It would be nice if there were a hard and fast rule for how much a lender will accept. As foreclosures continue apace, however, real estate agents and HUD-approved housing counselors should have a pretty good idea of the kind of deals lenders are accepting in your area.
You’ll want to work with a real estate professional when you’re trying to get your house sold at a price that will be acceptable to all of your mortgage lenders. A real estate agent’s negotiating help can be critical, because your lender may not agree with the proposed offer and instead make a counteroffer. This may go back and forth until everyone is satisfied or the deal falls through.
Example: Toby and Tyler face foreclosure on their first mortgage and decide that a short sale is their best option. They contact a real estate agent, who tells them that they should list their house for at least 75% of their mortgage debt—or $225,000—for the sale to be acceptable to the lender. The 75% figure is based on the agent’s knowledge of the going rate for lender acceptance of short sales.
As the foreclosure sale date grows nearer, and the house goes unsold at the 75% figure, Toby and Tyler finally get an offer that would pay 60% of their mortgage; they accept, contingent on approval by the lender. The agent takes the offer to the lender and quickly receives a rejection. The buyer raises his offer to 70%, and the lender agrees.
Excerpted from The Foreclosure Survival Guide, by Stephen Elias (Nolo).