The Samuel Team has many clients from around the US, Canada and Europe with interest in short sale properties in Naples, Fl. Many buyers and sellers don’t understand what a short sale actually is. Hopefully, this article will shed some light on the process and the benefits to both buyers and sellers.
So what exactly is a short sale, A short sale is a real estate sale where the monies received from selling a property fall short of the debts owed and lien holder/creditor (typically a bank) agrees to release the owner’s lien and accept less than the amount owed. Hence, the creditor/bank gets “shorted”. The unpaid balance owed to the creditors from a short sale is called a deficiency. It is important to understand that a short sale does not release the owner from their obligations to repay their deficiency unless specifically agreed upon between the owner and the creditor. Regarding deficiency judgments in a short sale, every situation is unique – we have done some transactions where the deficiency was waived and others where it was substantial.
Short sales are a viable alternative to foreclosure, because short sales are less expensive for both the owner and the creditor. A short sale will affect the property owner’s credit rating, but is not nearly as onerous as a foreclosure. Typically, owners are in a situation known as being “underwater,” meaning that they owe more to the creditor than the house is currently worth. We tend to see this type of short sales Naples Florida seller, especially owners who bought at the top of the market, in 2005/2006. Unfortunately, these people got caught in the housing bubble – some property values are down 30-50%, so depending on the value of the property, it makes little sense to hold onto the property and continue to pay the mortgage. Conversely, some owners may have lost their jobs, gotten a divorce, had a medical issue and currently can’t afford to make the mortgage payments.
To initiate a short sale, lien holders require owners to provide a letter describing a hardship as part of their “short sale packet”, which includes other financial information about the owner(s). There may be more than one lien holder in a short sale – a first mortgage, second mortgage, home equity line or a homeowner association – are common lien holders. So, the success of a short sale depends on how many creditors there are, the amounts owed and willingness of lien holders (and owners) to accept the deficiency (or waive the deficiency).
The short sale process can be complicated and time consuming, which is why short sale specialists like The Samuel Team can help both buyers and sellers navigate the process. Short sales can have a high failure risk because it is difficult for all parties to agree on terms in a timely manner.
The benefits of a short sale to buyers and sellers are clear. For sellers, there are lower costs and a lesser hit to their credit score than a foreclosure. For buyers, if they are willing to wait and negotiate with the bank on the value of the property, they can get a lower price than a standard arms length transaction.