What is a Short Sale?

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It's interesting how quickly the term "short sale" became an integral part of the real estate market vocabulary. It wasn't but a few years ago that "short sale" was a term used by commodity traders selling corn, soybeans or pork bellies and such.

A short sale is now known as a real estate transaction where the lender is going to accept less money than the actual mortgage amount due. As an example, if John Homeowner bought a home in the Wildwoods in 2005 for $350,000 and he put down $100,000, his mortgage amount is $250,000. His monthly mortgage payment is $1663.25 (not counting taxes & insurance) for 30 years.

But suppose John Homeowner, or his wife Jane, lost their job or had their income severely cut. Suddenly that vacation home at the beach is a luxury that Mr. and Mrs. Homeowner can't afford.

With the drop in values in the real estate market since 2005, the Homeowners are faced with the reality that their property is now only worth about $225,000, maybe less. It's not enough money to satisfy the bank that holds their mortgage. And of course, their down payment of $100,000 will be lost.

So after trying to sell the home for $325,000, then $299,000, and then $275,000, with little interest from potential buyers, the Homeowners decide to explore the option of a short sale. They have to get out from under the mortgage payments, which now are a month or two in arrears.

But deciding to go the short sale route isn't a simple process and this is when the expertise of your local realtor comes in. The realtor contacts a short sale attorney and the process begins. It's paperwork time for the Homeowners!

Amongst the requirements on the Homeowners are disclosure of mortgage, liens, tax liens and judgements information. They must sign a letter authorizing the attorney to act in their behalf with the lender and submit a letter explaining their hardship. Then there's supplying pay stubs, bank statements, financial portfolio, federal tax returns, W-2 forms, any outstanding loans, alimony, child support, and any correspondence with the bank concerning foreclosure proceedings. They're even going to be asked how much money Mrs. Homeowner spends each month at the beauty salon. You get the picture – it's very thorough, leaving no stone unturned.

Your realtor now markets the property as a "short sale", listing it at $249,000. A week later, a bid comes in at $220,000 and John and Jane accept it. The signed contract, which is "subject to third party approval", is forwarded to the bank – the third party. It's up to the bank to accept or reject the contract. Both the Buyer and Seller sign the contract with the understanding that the property was being sold "as-is", since the Sellers usually have no funds with which to pay for repairs. And they both know that the property is still being marketed and if a higher offer than $220,000 comes in, the Buyer usually has first right of refusal - meaning they have 48 hours to match the bid and still be in first position to acquire the property.

The bank assigns a negotiator to John and Jane's case. He must decide whether the $220,000 minus realtor commissions of $13,200 - yielding $206,800 - is enough to write off the $250,000 debt. It takes about a month or so to decide, at which point the negotiator assigns an appraiser to do an appraisal on the vacation home. In two or three weeks, the appraisal is in the negotiator's hands. Within two to four weeks, the bank will finally decide to accept the $220,000 bid. Closing takes place soon thereafter.

John and Jane Homeowner are now off the hook for the mortgage, insurance, real estate taxes, etc. The threat of bad credit hanging over their heads for years and years is gone, but the saga may not be over. The bank can and often does send the seller a Form 1099 for the $43,200 shortage on the loan. That means it is counted as income on the Homeowner's tax return if it's a second home, but not if it is their primary home. If the bank doesn't slap them with 1099, they have three months (if primary home) and one year (if second home) to go after the Homeowners for the $43,200 debt via a promissory note, or the bank can do nothing.

Short sales are a way to unload a financial burden and avoid foreclosure and bankruptcy, but the road to that end is full of potholes. It's the buyers, who acquire the property at a price below market value, that get the best of the deal. Still, it's a win-win for everyone!

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Our Short Sale Listings

AVAILABLE! 320 East Wildwood Avenue, Wildwood $105,000.00	UNDER CONTRACT! 401 East Stanton Road, Units 202 and 302, Wildwood Crest $335,000.00	AVAILABLE! 744 West Glenwood Avenue, West Wildwood $244,900.00
AVAILABLE! 2 Lake Road West, West Wildwood - reduced $100,000 $499,000.00	UNDER CONTRACT! 236 W. Juniper, #102, Wildwood $299,000.00	UNDER CONTRACT! 604 West Poplar Avenue - Short Sale, West Wildwood $195,000.00

Recently SOLD Short Sales

SOLD! 2908 Ocean Avenue, Wildwood $245,000.00

SOLD! 533B W Maple - Short Sale, West Wildwood $225,000.00

Can't Find the Right Property?

Finding the right property that best suits your needs can sometimes be a time-consuming and frustrating process. Maybe you need sound advice, someone to help you in your search. Someone who knows the market, real estate trends, land-use issues, and still has the time to give you personal service. That's where Jewell Real Estate Agency comes in.

We are a small agency, so you don't get lost in the shuffle. You are always dealing with the broker/owners - Joyce and Douglas Jewell. We answer our phones 6am to 9pm EVERYDAY. So you can even call us during your drive to work in the morning, or after dinner when your day is winding down. That's service!