Myths about short sales

The term short sale has become a term that has almost become a household name. There are a ton of questions and myths about short sales from the buyers side of whether or not to purchase one. On the seller's side they range from why you should and why you cannot do a short sale. I'll address the most common myths I come across when buyers and sellers inquire more about the infamous short sale.

FROM THE BUYER'S SIDE
"Short sales can't close quickly, they can take months to close!"
This is a true statement on an unapproved short sale. If the seller's lender hasn't approved a short sale then there are numerous steps and paperwork that must be completed before selling the home at the short sale price is even possible. However, once the short sale has been approved, the transaction can be closed in 7-45 days. If you're under a time constraint only pursue APPROVED short sales.

"Banks will forgive the difference."
I have personally yet to see this happen. Most banks will want some form of repayment or some form of distributing the loss that they agree to take. One popular method is giving the seller a 1099 for the loss whereas the seller would have to claim the loss as income the following year and pay taxes on it. You should definitely consult a CPA on how to make this a viable option.

"Banks will come after you for the difference"
Within the last few months this is becoming a more true statement. Banks do not file judgments on borrowers as they did in the past. What they are doing is installing lingo in the short sale approval that allows them to collect the difference. This practice is frowned upon by the government and as of February 2010, there have been moves to abolish this practice.

"You have to be late on your mortgage to be considered for a short sale"
Untrue until recently. I have personally closed short sales when the mortgage was not delinquent. In these cases there MUST be a current or upcoming financial hardship along with a decrease in property value to prove to the bank that a short sale is the best option. Some banks that service your loan do have investors that will not consider the short sale if you are current.

FROM THE SELLER'S SIDE
"I can do a short sale on my own"
Even your lender will advise against this. Most lenders want your home to be marketed up to 90 days and even an offer to purchase the home prior to reviewing the file for short sale consideration. Lenders even require activity reports, market research on sales in the area, and other information that only a realtor would have instant access to.

"Buyers don't want to buy a short sale"
Untrue. If buyers see value, they will want to buy the home. The exception is if the short sale is not approved yet and cannot close within 60 days. Most buyers actively looking at homes are looking to close anywhere from 2 weeks to 45 days. The problem usually lies within their real estate agent (did I just say that?) Most agents see the reduced commission and the uncertainty of when the deal will close as an automatic red flag. But to their credit, you do have many unskilled agents attempting to perform a short sale on the sellers behalf causing drawn out and sometimes failed transactions. If this is indeed the case, a buyer's agent would not lead a buyer into such an uncertain situation.