What is a short sale and do I need to sell my house that way?
Not to go off on a tangent, BUT a short sale is a trick the banks used to get more revenue for themselves and it can hurt you if you’re not careful.
Let me explain “what is a short sale” first.
A short sale is an agreement you create with the bank that SERVICES (I’ll explain in a minute) your loan to pay off the loan for less than what is owed on the balance. The bank orders a drive-by or BPO (Brokers Price Opinion) appraisal of the house. You fill out a bunch of papers and start selling the house. Any offers you get is sent to the Bank. If they agree to the sales price, you sell the house for the agreed price and the bank gets all the proceeds. You work out the closing costs with the buyer yourself usually.
Here is the part many don’t tell you. In a short sale, the bank can get a judgement against you for the unpaid balance of your loan. If the house sells for $80,000 and your loan balance was $100,000, you could owe the difference. We have helped a number of families that could not sell their house on a short sale because the process was so aggravating and long.
We were in trouble many years ago as many of you were during the housing bust. Our bank would not attempt to modify our loans (which I found out later is a requirement for loan servicers in Georgia). They only sent me “short sale” papers for over a year and that was not what I wanted to do. I finally gave up and filed Bankruptcy.
After researching and talking to a lot of sources, the general theory is that banks never wanted to modify these loans. WHY? Because the loans are sold to investors in HUGE Packages (Bond Notes) and the bank you went to in order to get the loan only gets the origination fee and a monthly servicing fee. SO, It was thought the banks would make more money in origination fees as these old loans went to foreclosure and new loans were made. This made them more money then they would have on monthly servicing of the old loan to the current homeowner. Since the servicers (banks) were in control of the loans, they could push the direction they wanted. Thousands of houses every month changed hands and new loans were made for 5-6 years. That’s a lot of new loans.
NOW, one trick to getting out of a short sale without owing the bank is this; READ THE CONTRACT! There is a part in the agreement of the short sale that says the proceeds of the sale IS the sole recourse of the loan. It should say that they accept the sales price as full and complete “liquid damages”. Basically it should say they accept the sales proceeds and they will not come after you for the rest. If the short sale agreement does not say this, negotiate it into the agreement.
The best trick is to not do a short sale unless you just love paperwork and lots of phone calls to a bank that thinks of you as a number. There are much easier ways to get out of a house that is more than you can afford or won’t sell fast enough. We solve real estate problems like this every month. Selling a house you don’t want only takes one phone call or click. Right here… CLICK.