Short sales emerged in early 1990 and since then, with the easy mortgages and the booming real estate market, they have been out of use, or at least written about but little. Now, with the increase of so many foreclosures, they again seem an easier solution for some homeowners. Of course real estate investors are certainly taking notice; they can buy these homes at a greatly reduced rate and sell them at a profit.
Most investors will hold on to them until the housing market is on the rise again. And rise it will since everyone needs houses. Real estate will never go out of style. Yet the concern here, at least from my standpoint, is how short sales will benefit the homeowner. The lender, which is most often a bank, or whoever owns the mortgage, simply wants to be paid and will most likely settle for any deal that will benefit them.
Why didn’t more home owners take advantage of this alternative to foreclosure? Although they stand to gain, when the tallying is all done, only their credit rating, and for a few at least, a little of their equity, it seems a smarter choice. Anything is better than a foreclosure. Is it possible that many have not been told of this option? Or is it something else, such as the complicated paper work that may not seem to them worth the effort. Or is the increased tax involvement with its potential for more aggravation?
What is the procedure? Usually, when payments are missed and the homeowner has no way of catching up, this amounts to about three months worth, the mortgage holder or lender or whoever holds the lien, files a foreclosure notice. Several months later, if no short sale has occurred, an auction at the court house begins. The bank then owns the house. In all about six months of time have elapsed. Or longer.
However, if a short sale takes place, the homeowner is the instigator. They advertise their house for sale or contact a real estate investor who is interested in not only making a profit but in helping these people get through their ordeal as smoothly as possible. After he gets their signature giving him or her the right to buy their property at the price still owed or even lower, he talks to the bank. The house legally is the homeowners until the court house auction.
Most likely the bank will agree since to hold on to the house and fix it up and get it ready for public sale will take money away from them and they want to get their money back, and they want to get it back as soon as possible. It is well to remember that any transaction during the months leading up to the auction is between the homeowner and the real estate investor or whomever contracts to buy the house. The only way the investor can deal with the bank is to buy the mortgage from them and then he goes about gaining the house in this way. The foreclosure responsibilities will then be his.
Hopefully, this will become a more used and a more useful means of easing the hardships of foreclosures for all involved. What I would like to see is better education for those buying houses so that fewer starry eyed home owners will be so traumatized. What’s caused these surplus properties to become available is over spending and the easy way homes could be refinanced. Too many refinanced, and spent their equity and when they needed cash for other expenses there was none. Yet, let’s not sell the wiser future homeowners short, they have at least learned a good financial lesson.