When presented with the option of short sales, property management or foreclosure, it's sometimes difficult to know which route to take that would best work in your situation. We hope to shed some light on each for you in this blog post to help you make a more informed decision.
Short Sales are where an owner sells the house with net proceeds being lower than what the seller's loan amount is. After negotiations are completed and there is acceptance of terms between buyer and seller, the seller's bank must approve the deal. With approval, the seller's bank will either require the seller to pay the difference later or will forgive the difference in net price to loan amount. The main problem? Most seller's banks are already overwhelmed and understaffed to handle the number of short sale files. The term "short sale" is an oxymoron because they are usually anything but short. Estimates usually range between 3 months to a year, and buyers often give up and move on to another property while they are waiting on the seller's bank to make approval. Short sales are all over our market and, along with foreclosures, currently make up 20% or more of local sales.
Foreclosures, where the bank already owns the property and therefore is the seller, are completely different from short sales and take much less time for the buyer. Attorneys have started specializing in aiding the short sale process, which are generally paid for by the seller's bank.
Foreclosures and short sales both hurt an owner's credit quite a bit, but I understand the foreclosure is worse on the credit between the two. As funny as it seems, the bank may not consider the owner for either unless they have stopped paying monthly mortgage payments for some time. If it is at all possible to honor the loan commitment, then it is best to do so. If it isn't possible, then the seller must choose between the two, discussing the foreclosure option and short sale option with their loan company and an attorney.
Property Management takes place when many owners decide in the end to hold on to their property and have it rented until the market improves. While this option is probably the most viable, the owner must be able to make up the possible difference between the monthly rent proceeds and the monthly loan payment. This can sometimes be hundreds of dollars a month, but it meets the loan commitment and is better than paying the difference of tens of thousands on a sale or having credit trashed. A seller should usually consider this the best option.
The route to take varies from situation to situation. We hope to help you make a knowledgeable decision if the time ever comes.
Written By Rob Brooks