Quick definition: A short sale is when a bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on a property.
Troy Stavros, Broker and Partner with the 865 Real Estate team at Gables & Gates, REALTORS stated, “There are so many options today for struggling homeowners in Knoxville, that they should no longer have to ever go through a foreclosure.”.
Let’s look at the Top 10 misconceptions regarding short sales:
Misconception #1: If mortgage payments cannot be made, foreclosure is the only option. Coming out of the last few hard years, more options have become available than ever before to avoid foreclosure. Short sales and loan modifications are the most prevalent.
Misconception #2: Allowing the home to go into foreclosure leaves the homeowner free of any future repercussions. Not true! Even after a foreclosure, homeowners could be hit with owing a deficiency balance (this means owing the difference between what your Knoxville home sold for and what you owed) or IRS tax liability. A properly negotiated short sale has the ability to relieve a homeowner from this debt.
Misconception #3: Short sales are too hard to qualify for. There are really only two main criteria necessary to qualify for a short sale. First, the home must be worth less than the current balance on the mortgage. Second, the owner must be able to prove a true financial hardship, such as a decrease in wages, job loss, divorce, or medical condition that has altered the ability to make the same income as when the loan was originated.
Misconception #4: Banks do not want to do short sales.Wrong! Any day of the week a bank would choose doing a short sale over having to foreclose on a property. Foreclosures cost banks lots of money and man power. In fact, many banks are offering incentives for customers that complete a short sale instead of going through foreclosure.
Misconception #5: Short sales don’t happen very often. Today in many real estate markets, short sales are 10-50 % of total sales. Many experts are predicting that 2013 will see the highest amount of short sales to date.
Misconception #6: Short sales are too difficult and rarely get approved. Short sales like any Knoxville real estate transaction require the expertise of a Knoxville real estate agent that is educated in the process. If short sales are denied, it is typically because the correct process was not followed. Short sale approvals are happening daily with the help of experienced professionals.
Misconception #7: A short sale will be expensive for the homeowner. In fact, this is the complete opposite of the truth. A short sale should not cost the homeowner any out of pocket expenses. The commission paid to the Knoxville real estate agent selling the home is taken care of by the bank. Actually, with the various incentive programs being offered by banks and the government, a homeowner may actually walk away with more money!
Misconception #8: A short sale is not an option because a foreclosure notice was already sent. While this timing may make a short sale more difficult, it can still happen. Banks have been known to delay foreclosure proceedings in order to get a short sale approved and finalized. The recommendation would be to start the short sale process as early as possible, but if a foreclosure notice has been received, don’t give up hope.
Misconception #9: Denial of a loan modification means a short sale will not be possible. While both of these options are ways to avoid foreclosure, they are separate entities and handled by different departments at the lending institution. Just because one says no, this has no bearing on what the other department will say.
Misconception #10: Doing a short sale will eliminate the possibility of buying another home in the near future. Like all loan approval, many factors are taken into consideration. With that being said, in November, mortgage giants Fannie Mae and Freddie Mac said a homeowner may be eligible to purchase again two years after a short sale. Some newer FHA programs may allow a purchase sooner than that.