Real Estate Short Sale question?

Question by irish girl: Real Estate Short Sale question?
I understand what a short sale is, but how do you get to the point where you owe more than what your house is worth? People have told me that you are not always behind on your mortgages payments when the short sale happens, but how else do you get to that point?

Best answer:

Answer by Expert Realtor
When the value of the home drops due to multiple foreclosures in your immediate area or a negative ammortization loan.

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  1. Little Rock Realtor says:

    You have to be 2 to 3 months behind on the mortgage before the mortgage company will talk about a short sell. Even if you do a short sell the mortgage company can try the get the difference back from you.

  2. Sally says:

    you can not just walk in and say I want to do a short sale, your mortgage must be in difficulty.

    IF the bank accepts the short sale you DO NOT owe the remainder of the balance unless that is a part of te short sale!

  3. Tammy S says:

    We were actually in pre foreclosure when the bank would even talk short sale with us. We went to a realtor specialized in short sales. We owed 201,000 on our house and it was only worth 160,000. We had 2 mortgages, the first one was for $ 161,000 and the 2nd one was for $ 40,000. The realtors office negotiated the first mortgage down to $ 135,000 and the 2nd mortgage down to $ 5000. We had to write a letter to the mortgage company to explain our hardship before they would approve the short sale work outs. The realtor then listed the house just like a normal sale and it sold 2 weeks later. We received paper work from the mortgage company beginning of the next year for our taxes. We had to pay taxes on the difference of loss to the first mortgage. So we did not really receive a return.

    Our ties were cut and we were on our way.

  4. Judy says:

    If your house price drops beyond what you owe.

    Usually a lender won’t agree to a short sale unless you are behind on payments, though.

  5. utreinvestor says:

    There are several ways to get “upside down” in your house. 1) the market conditions change through too many homes on the market or too few buyers (or both). 2) affordability decrease…the ability to qualify for a loan goes down, interest rates go up, down payment requirements are too high, etc. 3) a loan may be a negative ammortization (gets bigger over time because the payment is less than the interest owed). 4) the property was bought over priced for any reason. 5) the market cycles and the property was purchase when prices were high and now the prices are lower.

    Since a short sale is any time the bank take less than what they are owed there has to be a reason that the bank feels it is in their best interest to agree. right now the foreclosures are at record numbers and many banks have too many foreclosure properties on their books and are in danger of loosing their FDIC insurance. if the bank feels that they are in danger of taking back your house they are willing to negotiate.

    in the past the bank didn’t feel there was a problem or any reason to negotiate until your payments were in default. several answer have already alluded to this idea (that banks will only negotiate if your behind in your payments). as an active investor in the market we are seeing banks begin to negotiate before payments are in default.

    again, the bank must feel that it is in their best interest to negotiate. so you will need to “prove” that there is a danger that the bank may have to foreclose on your home in the near future before they negotiate. you will need to write a hardship letter and create a personal financial statement showing you can no longer afford to make payments on the home. if the bank agrees with you after reviewing your information and you have shown good faith and effort to truly sell your home for at least what you owe then the banks will start talking about short sales.

    on the other hand, if you can afford the home, regardless of the value, the banks won’t talk to you. if you let the home go into foreclosure and you could have made the payments, a bank may still sue you for the amount any money they didn’t collect through the foreclosure process and make you pay it anyway. a foreclosure doesn’t necessarily erase a debt, it just offsets the debt by taking your collateral (the house) and selling it for what they can get and then they decide if pursuing a lawsuit for the rest is financially feasible.

  6. Fountains of Jane says:

    House values are based on what people are willing and able to pay.

    The short answer is that there are a ton more homes for sale than people willing and able to buy. This has led to a decrease in values over a couple of years ago. People who bought homes a peek prices often find themselves with a mortage that now excededs the home’scurrent value.