One of my readers posted a comment which truly deserved to be answered publicly as it seems from looking at some of the search terms used many people have similar questions. I have highlighted the questions in green and answers in brown. Hope this helps clear the confusion for a few people.
I have heard a lot different aspects of doing a short sale and, to no surprise, some things people have told me conflict with one another. I was wondering if you could clear some things up for me. And I ask these questions in regards to residential property in Oregon.
First, in Oregon to go through short sale do homeowners need to be in default? Or could they consider and talk to lenders about potentially doing a short sale if the homeowners expect that they can no longer make payments on their homes? The answer to this question is complex – There is no rule that says in Oregon or any other state that a seller must be in default to do a short sale. Some banks will not discuss a short sale if you are not in default because they have so many of them in the system, that if you are still making your payment you might not get the attention you would if you are behind. The guideline is that you must have a hardship – and it must be a valid hardship. So, let’s say that you have been paying your payment out of your retirement account and now you are close to being out of money – you have a potential of being behind in the near future. When you list the property and find the buyer you very well may be in default or very close to it.
A seller that is just upset because they are upside down in their property, yet still able to make the payment is less likely to get bank approval than a seller that has lost a job or had a major change in their life. When a short sale is presented to the bank a financial worksheet is generally included which will show if you can or cannot make the payments. If you can see disaster coming down the road, some banks will actually try and work with you, your first option should always be to talk to your lender, an attorney and possibly a tax professional.
Second, do you absolutely need to have a potential buyer when trying to qualify for a short sale? Or can that part be satisfied after being okay-ed by the lender for short sale? When you are trying to sell your home as a short sale, you generally need to list it with a REALTOR® just like any other listing. The buyer will come from the listing of the property – so do you need a buyer – in the end yes – you can not sell without a buyer. However, you do not need a buyer before listing the property or being considered for a short sale.
Third, I have read and heard from various sources that in order to qualify for short sale homeowners must meet certain criteria (i.e. the home’s market value has dropped, the mortgage is in or near default status, the seller has fallen on hard times, the seller has no assets)? Do homeowners need to meet all the criteria or is just one of them enough? Also, are there other factors lenders look into when determining if homeowners qualify for short sale? Every short sale is different and the same. If your home’s value is more than the amount owed, it would not be a short sale it would be a standard sale. A short sale is simply put – a sale of a property that the purchase price is less than the loan amount (or amounts), the bank or banks must approve the price, the terms and so on before the sale can take place. There are generally 3 things that every short sale has – 1. The property is worth less than the amount owed. 2. The seller has a hardship causing them to be in default or default is going to happen. 3. There is no cure in site for either of the first two items. There are a few banks out there that are more difficult to work with because of the work load they carry, and some have their own specific guidelines as to when they will or will not consider a short sale. Every seller, bank and transaction is different.
If you could answer these questions for me, it will be greatly appreciated. Thank you. I hope this helps you – I would be more than willing to expand or answer any other questions you may have. Give me a call, drop me an email or leave a comment and I will do my best to help you out.