Short Sales

Due to current economic conditions, the number of short sale properties on the market is rising. The increasing number of short sales on the market presents challenges for REALTORS®. Below you'll find more information on: short sales & their challenges and a little about the government's efforts to address these challenges.

What is a short sale?
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt. Banks grant short sales for two reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth.

A few examples of a hardship are:

  • Unemployment / reduced income
  • Divorce
  • Medical emergency
  • Job transfer out of town
  • Bankruptcy
  • Death

What is a REO Property?
 
Properties that the bank owns due to lack of sale at the Trustee Sale (Auction). A Forclosed property that has returned to the Lender.

Why are the number of short sales rising?

Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.

A short sale can also be the best option for a homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.

What challenges have short sales presented for REALTORS®?

The rapid increase in the number of short sales, and the short sales process itself present a number of challenges for REALTORS®. Major challenges include:
  1. Limited experience
    Many REALTORS® are new to the short sale process; a difficulty which is compounded by many lenders' lack of sufficient and experienced staff to process short sales. Even if the REALTORS® are experienced, most servicers are under-staffed and still not adequately trained, making negotiating a short sale particularly difficult. If you are thinking about short-selling your home you should work with a CPDE certified Agent who is knowledgable with the short-sale process.
  2. Absence of a uniform process and application
    Until HAFA guidelines were established, both short-sales documents and processes were lender-specific, making it very difficult and time-consuming for REALTORS® to become knowledgeable and efficient in facilitating these transactions.

  3. Multiple lenders
    When more than one lender is involved, the negotiations are much more difficult. Second lien holders often hold up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will get nothing.

As a result of these challenges our members have reported difficulties with: unresponsive lenders; lost documents that require multiple submissions, inaccurate or unrealistic home value assessments, and long processing delays, which cause buyers to walk away.

What is being done to address or eliminate these challenges?

HAFA is designed to address many of the challenges presented by short sales. For more information see NAR's Home Affordable Foreclosure Alternatives Program