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Short Selling Your Home

Be sure to notice additional information resources at the bottom of this page!  Also note our Seminars page reflecting that Guidant is the local expert, training other agents and brokers on this topic.

A short sale is often the best available option for individuals who need to sell their home but owe more than they can receive in a sale - this is often referred to as being "upside down" on a loan.  In many cases, by working properly with the lender, that lender will agree to write-down the loan to a level that will allow a standard market sale.  Because the lender is performing a write-down instead of the seller bringing sufficient funds to close the loan at its existing level, it is considered "selling short", hence the reference of "short sale".  While this can be a great alternative, do not be fooled, the process is anything but "short"!

Why Conduct A Short Sale?

There are three main reasons to conduct a short sale, the first being the protection of your credit record.  While FICO states that they rate a short sale and a foreclosure the same, that is only for the event itself.  Keep in mind that there is a "foreclosure" mark on credit records, but there is no "short sale" mark.  So, your credit report may not even pick up the event properly as a short sale.  Depending on the situation a foreclosure can prevent the Borrower from obtaining another home loan for 2 - 7 years, depending on situation, while a short sale registers as 2 years in most cases.  Most short sales are reported on a credit record with language similar to "debt settled for less than amount owed".

Second, not only is it important that it shows the debt positively settled, it is much easier to explain on future credit applications when the individual obviously worked with their creditor to alleviate the situation rather than just walking away.  With mortgage underwriting standards constantly changing, addressing your distressed situation with a short sale rather than ignoring it and allowing the foreclosure could play to your favor under future standards.

The third important reason to conduct a short sale is to avoid a deficiency judgment.  In this situation, the creditor can legally pursue the debtor for several years after the debt is closed, continually delaying the recovery of a credit record and potentially ending with the wages of the debtor being garnished when the process is complete.  For example, if a homeowner owes $500,000 on their home and the sale only nets $400,000, they would be "deficient" $100,000.  California is a "single action" state where in most cases a lender can only foreclose or pursue a judgment, but not both.  However, that is only for the foreclosing entity and does not cover other debtors on the same property like second loans.  Also, the sale value of the home could be well under market if the home is sold at auction or remarketed several months later as a bank-owned property, creating a much higher deficiency balance.  This is a complex issue, but negotiated properly, any deficiency exposure would be negotiated out of the final settlement, allowing the homeowner to truly put the situation behind them.  Most agents are quick to share that they are "experts" in short sales, however a true test of their knowledge and ability to properly represent you is to ask what they know about deficiency obligations.  As critical as this issue is, it continues to amaze us at how many agent websites try to show their skills in this area by using approval letters from lenders that still have a deficiency clause in it stating that the seller can still be pursued for this balance!

Why Do Lenders Approve Short Sales?

There are many "approved" instances in which lenders would agree to allow the homeowner to short sell their home, including job loss, relocation, divorce, deteriorating health, large mortgage reset, and other financial difficulty.  However, the simple fact is that a foreclosure typically costs a lender between $30,000 and $70,000 in lost income, legal, and remarketing fees.  While unadvisable and illegal, many homeowners will gut or severely damage a home before leaving, significantly lowering the resale value of the home.  In addition, a vacant home is a prime target for vandalism and theft.  In a declining market the value of the home goes down every day and a foreclosure can take much longer to bring to market than a home already prepared for sale.  In the end, any home obviously headed to foreclosure will put pressure on the lender to allow the short sale.

How Do I Find Out More?

We have a slide set available with a few more highlights, including a Frequently Asked Questions section if you are not yet ready to call us.  However, if the topic is important enough that you read this far on the page, the honest truth is that it is probably time to give one of our agents a ring.  With 15 minutes on the phone, we can give you a much better overview.  With an hour in our office, we can honestly assess your situation, explain the process in detail, and help figure out the best solution for you - even if it is not a short sale.  Some of our clients come recommended by their bankruptcy attorney, who like us, prefers to send clients to their best alternative rather than provide less than ideal services for the situation.  Almost every person who visits our office for a full review leaves visibly less stressed once they truly understand their options.  If we do nothing more than help you restore some of your sanity and hope it will make our day as well.  The best part is that if we do proceed with a short sale, our fees come out of lender net proceeds and expert advice will cost you nothing. Please do not hesitate to call as the consultation is both confidential and free.  Once you spend some time with us we believe you will understand why we call ourselves "Guidant" Realty.

Click here to download the Short Sale Overview Slide Set (2MB .pdf)

Additional Resources

Hope Now - A great guide to all your options, be sure to visit their "Homeowner Resources" section.

US Trustee Program - Advice on how to avoid mortgage foreclosure scams and who to contact if you think you encounter one.

CA Dept of Real Estate - Information on laws for loan modification companies, including links to DRE authorized loan modification companies, and to loan modification operators with desist and refrain orders or accusations against them.

State Bar of California - Names attorneys being investigated for loan modification fraud.

CA Consumer Mortgage Information - A great site compiling links to information on avoiding foreclosure, what to do when losing your home, credit counseling, and how to identify and avoid scams.