Is Your House Eligible For A Short Sale?
The best way to sell a house in Dallas TX if it is more than 20-30% under water, without having to pay off the shortage, is to negotiate a short sale. This is also one of the most common ways to sell a house in which the owner is already many months behind in payments, has little or no equity, and wishes to avoid a foreclosure. Is your house eligibly for a short sale?
A Short Sale involves an Investor and a Realtor, working with the house owner to negotiate with the house owner’s lender. The goal of the negotiations is to prevent a foreclosure auction and negotiate a discounted payoff on the loan. Using this method, the house can be purchased at a reduced price and a foreclosure can be avoided.
Scenario Of A Short Sale
- Actual house Value: $185,000
- Existing loan payoff: $210,000
- Sales price needed to break even: $231,000 (assumes 10% closing costs)
This house would have to be sold for approximately $231,000 to cover all loans, taxes, closing costs, commissions, etc. Unfortunately, the house is only worth $185,000 in the current market, so the house owner would have to come up with $46,000 to cover the difference.
Now, let’s look at a Short Sale Scenario…
- House Value: $185,000
- Negotiated loan payoff: $165,000
- Sales price needed to break even: $181,500
In this scenario, after the loan is negotiated, the house can be sold for anywhere from $181,500 to $185,000 with no foreclosure and no additional cost to the home owner.
Short Sale Pros and Cons
The advantage of selling your house with a short sale, is that it may be the only way to actually sell a home where the loan add up to more than the house is worth, and the house owner cannot make up the difference. And, starting a short sale can both postpone a foreclosure and (if successful) avoid a foreclosure.
The disadvantage to a short sale is that, like everything, it does affect a house owner’s credit. A successful short sale is simply better than a bankruptcy and much, much better than a foreclosure. Also, about half of short sales are either denied by the lenders, or are never negotiated to a price that a buyer will accept, meaning that about half still end in foreclosure. Finally, a short sale may result in a deficiency judgment (in the event that the lender sues you for their loss, which is rare), a negative impact on a person’s security clearance (for some government employees), and a 1099 for phantom income that may have tax ramifications (although the Debt Forgiveness act of 2007 temporarily restricts lenders for issuing these to homestead short sale sellers)
Short sales are highly complex negotiations that take significant time, paperwork, and expertise. They are among the most complex transactions in real estate. In addition, it typically takes many many months to negotiate with the seller’s lender.
Dallas Houses for Cash is an investor company that has performed a large number of short sales for sellers in Dallas TX needing this service. If you would like to discuss a short sale, and all of your other options for avoiding foreclosure, Dallas Houses for Cash can help! Contact Us if you would like to explore this further or if you are ready to sell your property just click here
Questions about Short Sales
Q: Can I do a short sale myself?
A: No. A lender will need a purchase offer before they will even consider negotiating a short sale. The offer must be real and be accompanied by a “Proof of Funds” letter from the investor and/or buyer. Additionally, the lender will want a great deal of documentation from the property owner. Our network of investors and Realtors has a great deal of experience and expertise in this area. If you would like our help: Contact us
Q: Will a short sale hurt my credit?
A: Yes. Everything you do affects your credit to different degrees. In order for a lender to consider approving a short sale on a loan, the loan will generally have to be non-performing. In other words, the property owner must be behind in payments – thus credit damage is already occurring. Once the short sale is approved, the lender will “charge off” a portion of the loan, which also affects the property owner’s credit. The benefit is that the property can be sold and that a foreclosure and its legal ramifications can be avoided. Most experts acknowledge that a foreclosure is the worst thing that can happen to your credit.
Q: Do I have to Bring Money to the Closing with a short sale?
A: Not usually. The bank will pay for all of the closings costs, commission, taxes and fees on behalf of the property owner (out of the proceeds) to facilitate the transaction. Beware of companies that charge fees for foreclosure avoidance, loan modifications, and credit repair – many of these services are not reputable, and possibly not legal.