Short Sales: AKA–Distressed Property Sales
Distressed Properties, Foreclosures, Redding Real Estate, Shasta County Real Estate, Short Sale
October 1st, 2009
What is a Short Sale?
As you can imagine, as a Realtor, I get a lot of questions about short sales and foreclosures. I find that while most people understand in general what a short sale is, the details are a bit fuzzy. This is the first article, in a series, about the short sale process. My goal is to explain the process well enough that you will be able to decide if a short sale is something you want to tackle. Whether you are a buyer or a seller the more information you have, the greater the chance of having a successful experience.
In this article I will try to explain in simple terms what a short saleis and how it relates to the foreclosure process. I am a Realtor in Redding, CA and my information is specific to California and how I understand the process. I am not an attorney or an accountant so my advice is based on a real estate professionals perspective. Anyone thinking of selling their home in a short sale situation should seek the advice of both an attorney and an accountant before proceeding.
In a short sale a house is sold for an amount less than the what is owed on the loan/loans secured by that property. Simply put, if the loan amount is $300,000 but in the current market the house will only sell for $200,000 this would be a short sale situation. The lender/investor who holds the promissory notehas to agree to accept a lesser amount as a payoff. A common misconception is that the lender must participate in a short sale. This is not true, it is ultimately up to the lender to decide whether to accept a short payoff on their note or not. The short sale process has many different factors that affect the outcome and is different with each lender and seller’s situation. You need to have a Realtor who is trained and experienced in short sales and who you trust to guide you through the process.
Typically a house in a short sale is already in the foreclosure process. It is possible to get a lender to agree to a short payoff when the house is not in foreclosure, but it is unusual. For our purposes we will assume that the house is in foreclosure. To understand a short sale you need to understand the foreclosure process. The foreclosure process starts when a borrower becomes delinquent on their loan and the bank records a Notice of Default (NOD). Once the NOD is recorded the foreclosure process is officially started. In California the typical foreclosure process is a non-judicial foreclosure or Trustees Sale. The timeline for a trustees sale is generally a minimum of 3 months for the NOD period, then a notice of sale is recorded, then it is 25 days till the sale date. It can be a longer time frame, but that is up to the lender.
A short sale generally takes place during the foreclosure time frame. Often a lender will delay the notice of sale or the sale date if the borrower is involved in a short sale, a loan modification, or bankruptcy. There are numerous pitfalls to this whole situation, for both the buyer and the seller.
On a final note (don’t worry–more to come) there is nothing short about a short sale except the payoff to the bank. If you decide to become involved in a short sale expect it to take 3 to 6 months to complete the process. Sometimes the time frame is shorter, but don’t count on it!
As always I am here to answer any of your real estate questions.
Lauri
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You do a great job, Lauri. Your explanation should be really helpful to many. Looking forward to more from you.