Over the next few weeks Rocky Mountain Luxury Properties will be publishing a series of entries on Short Sales. Our goal with this series is to help you understand a very complex short sale process. Our belief is that we can make short sales a more viable option for homeowners in need by using our expertise to help simplify the process.
In the first installment we will define a short sale, as well as, describe the benefits of short sales to both homeowners and lenders.
What is a short sale?
A short sale is one way for homeowners to avoid foreclosure and the associated credit score penalties. In a short sale, the owner receives permission from their lender to sell their home for less than is still owed on the property. In a traditional short sale, the seller would still be responsible for the outstanding debt. In response to the housing crash in 2008, the Obama administration and the Department of Housing and Urban Development (HUD) have allowed qualified homeowners to be forgiven the difference between the selling price and what’s left on the mortgage.
Why do Banks like short sales?
Lenders prefer short sales because in many cases it can be less expensive than foreclosing on a property. When the bank chooses to foreclose they are expecting to incur extensive legal fees, property management and damage costs, and delays from the process. In addition to foreclosure being a costly process, the bank will usually sell a foreclosed property at a liquidation price. The pricing benefits of short sales is demonstrated by this recent data. According to this study, bank owned property prices were on average 28.5% lower than non-distressed property prices, while short sale property prices were only 23% below normal prices. Furthermore, damaged bank owned properties were on average a whopping 60% below non-distressed prices. Short-sales not only benefit homeowners by allowing them to get out from underwater, but also minimizes the lender’s loss.
That’s it for the first installment in the short sale series. In this post, we defined a short sale; and laid out the benefits for homeowners and lenders. In the coming editions of our short sale series we will give an overview of the six types of short sales and also provide a mock short sale package.
We hope that Rocky Mountain Luxury Properties can be a valuable resource for you! Contact us here with any comments, questions, or even just to chat!