Short Sales

Naples, as most of the country, is experiencing a changing economic climate.  Here is a brief explanation of what a short sale is and some ramifications of purchasing a short sale.  Hopefully this assists in giving clarity to the issue.

A short sale typically occurs when the Seller's net sale proceeds after payment of customary closing costs from the sale of real property are insufficient to pay the outstanding mortgage loan and or other lien balances in full at closing.  Generally, a short sale Seller is in default of his loan or lien obligations, and is able to document the financial inability to met ongoing repayment obligations.

Example:  Someone purchased a home 2 years ago and one of the wage earners loses hours and or their job.
Example:  Seller had an ARM loan and it is readjusting and they now cannot make the payments.

The lender usually takes the loss.  Remember in February, 2008 all the lending institutions taking over 120 Billion dollars in write offs.  This is the reason.  Also, the reason for the shaky financial institutions, because what they invested in is now not worth the number on paper because of the deflating market.  Roughly 20% of listings in 2008 are short sales and short sales are expected to go to 40% in 2009.  Please remember only 20% of short sales are closing.  Lenders are not getting on board.

There are two types of short sale:

 
1. The lender is on board.  The seller has shown to the lender that they, the seller, are truly in   hardship and even loan mitigation would not help.  Loss of job, cut back in hours.  And the   Seller does not have the saved funds to make up the difference
 
2. The lender is not on board and the Seller just takes an offer to them and says you, the lender make up the difference and take the loss, without any verification by the lender. The lender will want to be sure that the seller is up front in all of the dealings and not just   relying on the lender to take the loss.

Hence the second type of short sale may take much longer, the primary reason that only 20% of short sales manage to close.