In a broad sense, a “short sale” is any sale in which the proceeds are insufficient to cover the cost of closing the sale. This definition of short sale focuses attention on the problem with such sales: the seller’s lack of money at the closing table. In a short sale, the seller is said to be “upside down.”
In a short sale something has to give or the deal cannot close for want of clear title. The seller is going to have to put money into the sale, or transaction costs have to be reduced (e.g. commissions), or one or more creditors agree to reduce debt or some combination of these things has to happen. Debt reduction by the mortgage holder is what is usually meant when real estate agents talk about doing a “short sale.” Doing a “short sale” sounds simple. It is not.
What follows is an explanation of the process involved. It begins with Do the Numbers so you, your client and eventually the lender will understand the exact financial situation. Part of doing a short sale is having a serious Talk with the Client about their financial condition. Once you have the numbers and know your client’s financial condition, you can Contact the Lender, Market the Property, Write the Deal and, finally, Get Paid.
Short sales are driven by the threat of foreclosure. Most lenders will not consider a short sale until foreclosure has become a real possibility. That means missed payments and financial distress. Foreclosure also drives short sales because lenders, as a rule, will consider a short sale only when they will make more on the short sale than they would make in a foreclosure. Click here for an explanation of Oregon foreclosure laws.
Agents sometimes consider a short sale for the first time when the seller accepts an offer that will not generate enough money to clear title. This is an extremely poor practice. If the seller has not missed any payments, and is not otherwise in serious financial distress, the lender is probably not going to be interested in a short sale. Lenders are simply not interested in protecting the seller’s other assets or, for that matter, real estate commissions and other closing costs.
What lenders want to know in a short sale situation is what business people always want to know: what’s in it for me? Do not make the mistake of approaching a lender with what is in it for the seller, the buyer or for you. Instead, to be successful in a short sale situation, you must be prepared to show the lender that approving this sale at this time for this amount of money is in their best interests. To do that, you have to know the numbers.
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