Often the only way to sell a home with little or no equity (and avoid a possible foreclosure) is a short sale.
A Short Sale involves an investor (buyer), working with the homeowner to negotiate with the homeowner's lender. The goal of the negotiations is to postpone a pending auction and negotiate a discounted payoff on the loan (or loans). Using this method, the home can be purchased at a somewhat reduced price and a foreclosure can be avoided.
Standard loan payoff:
- Home Value: $200,000
- Existing loan payoff: $210,000
- Sales price needed to break even: $225,000
- This home would have to be sold for approximately $225,000 to cover all loans, taxes, closing costs, commissions, etc. Unfortunately, the home is only worth $200,000, so the homeowner would have to come up with $25K to cover the difference, or give the home up to foreclosure, or SELL IN A SHORT SALE.
Short Sale payoff:
- Home Value: $200,000
- Negotiated loan payoff: $165,000
- Sales price needed to break even: $180,000
- After the loan is negotiated, the home can be sold for anywhere from $180,000 to $200,000 with no foreclosure and no additional cost to the homeowner.
The advantage to a short sale is that it may be the ONLY way to sell a home where the loans add up to more than the home is worth. And, it's the best way to avoid a foreclosure.
The disadvantage to a short sale is that, like everything, it does affect a homeowner's credit. A short sale is simply better than a bankruptcy and much, much, much better than a foreclosure (the "Atomic Bomb" of credit scars).
Short sales are highly complex negotiations that take significant time, paperwork, and expertise. They are among the most complex transactions in real estate. In addition, it can take from 2-4 months (or more) to negotiate with the seller's lender.
New Dream Home Solutions and their partners have performed over 1200 of these transactions and has achieved a very high success rate from our detailed processes and experience. If this is your best option, New Dream Home Solutions can help.
- Can I do a short sale myself?
- No. A lender will need a purchase offer before they will even consider negotiating a short sale. The offer must be real and be accompanied by a "Proof of Funds" letter from the investor buyer. Additionally, the the lender will want a great deal of documentation from the homeowner. An investor who's done many of these, like New Dream Home Solutions, can help you navigate through all of the short sale hurdles. You really want an expert when doing a short sale.
- Will a short sale hurt my credit?
- Everything you do affects your credit to different degrees. In order for a lender to consider approving a short sale on a loan, the loan will have to be non-performing. In other words, the homeowner must be behind in payments. Once the short sale is approved, the lender will "charge off" a portion of the loan, which also affects the homeowner's credit. The benefit is that the home can be sold and that a foreclosure with its legal ramifications can be avoided. Most experts acknowledge that a foreclosure is the worst thing that can happen to your credit.
- Does it cost me anything to do a short sale?
- New Dream Home Solutions and their short sale partner company has helped over 500 people avoid foreclosure by selling their homes through a short sale. New Dream Home Solutions does not charge the homeowner any fees for this service. The bank will pay for all of the closings costs, taxes and fees on behalf of the homeowner to facilitate the transaction. Beware of companies that charge fees for foreclosure avoidance and credit repair - many of these services are not reputable.