A short sale, which is when a home is sold for less than what is required to pay off the mortgage, is more complex than a regular sale and takes longer to complete. How long it takes depends on many factors, but about six months is a common rough estimate from professionals with short sale experience.
When someone takes out a loan for a home and its value drops to less than what they owe on the mortgage, that's called having negative equity or being underwater. As long as the monthly mortgage payment is affordable, negative equity is not the end of the world. You can just keep making payments and eventually you should have equity from paying down the loan and/or appreciation of the property.
But when a hardship such as a loss of income has left a homeowner unable to pay their mortgage, they don't have the option of waiting. In situations like that, getting rid of the home in a short sale can be better than going through foreclosure, as it keeps them in control of the process, can be less damaging to their credit, and may allow them to become a homeowner again in less time.
Conducting a short sale is similar to a regular real estate sale, only with more hoops to jump through. Just as in a regular, full-equity sale, in a short sale you will work with a real estate agent to list, market, and sell your home. Unlike a regular sale where the homeowner has equity, your mortgage company will have to be involved in accepting an offer, or setting your listing price and ultimately, approving the sale at all.
Here are some of the common issues with the short sale process that can cause it to take a long time:
1. Bank doesn't want a short sale
You need your lender to approve a short sale. It's not like a regular sale, where all you have to do is try to get the highest price, and your mortgage is paid off by the buyer. Instead, if a short sale is completed, the bank will be accepting less money than what they're owed on your loan, and they're not going to do that unless they're convinced it's the best of the options available to them.
Sometimes the bank has started foreclosure and is determined to finish it, and may not care about your desire for a short sale.
2. Difficulty finding a buyer
You might have the bad fortune of listing your home for sale at a time when demand is weak and/or prices are depressed in your area. If someone makes an offer for less than what your lender thinks the home could bring in, your bank can reject and/or counter the offer.
3. There's a buyer, but their financing falls through
Our firm has had clients who found a borrower that wanted to buy their home, but at the last minute their financing fell through and they couldn't purchase the property. A short sale requires two banks to do their part. The seller's will be approving the sale, and the buyer's will be loaning the money. Without both of them, there's no sale.
4. Buyer gets frustrated with how long it's taking and walks away
Good things are worth waiting for, but there's a limit to how long a buyer can, or is willing, to wait to purchase a home. Sometimes the process can take so long that the buyer gets tired of waiting and looks for something else.
Or their lease may be up or their home sold, and they have to find somewhere to live and don't have the option of waiting around for your bank to approve a short sale. They have to give up and find somewhere else to live, and you have to look for another buyer.
5. Listing agent problems
You'll need a real estate agent to list your property for sale. If the agent doesn't have a lot of experience with short sales, that could be a problem, because there is more to a short sale than a regular home sale.
If your agent isn't familiar with the process of pushing your bank to accept a good offer, and approve the sale, or if they aren't marketing your short sale property effectively, it can cause delays, and even let your home fall into foreclosure. Stack the odds in your favor by getting a real estate agent who has successfully completed short sales in the past.
Don't settle for a short sale when you could get a loan modification!
Don't settle for a short sale if you really want to keep your home. You may be eligible for a loan modification, which will return your mortgage to normal servicing with one or more of its terms permanently changed. Loan mods offer a fresh start and can include lower monthly payments, though they can take a lot of work to get. Applications for loan modifications are frequently denied.
Some homeowners in foreclosure have come to our firm and asked if they could pursue both a short sale and a loan modification so that if one doesn't work out they'll have the other option to fall back on.
It doesn't work like that.
You can't list your home for sale in a short sale and try to get a loan modification at the same time. If it's listed for sale for a short sale, the bank won't consider you for a loan modification because they don't believe you are interested in keeping the home.
Often, a homeowner has to fight foreclosure to be able to do a short sale or a loan modification, so having an attorney who can defend you from foreclosure with proven strategies can be the difference between success and failure. Short sales and loan modifications take negotiating. It's not all black and white, and not every solution is the same. Whatever you want for your home, it's a good idea to have an experienced professional working for you so that you can maximize your odds of getting what you want.