There are a significant number of short sales still happening in our market, so here’s a brief overview of how short sales work.
With the recent change we’ve seen in our market, homes values have increased, and as a result, we’ve also seen fewer short sales happening. There are still a significant number of people who are underwater at this time, though, so I want to answer a few questions you may have about short sales.
First, what does the bank do with all of the seller’s information? They gather that information to make sure that when they’re combing through your bank statements, income, and finances, everything is accurate.
For the private investors that put up the money for these short sales—say they put up $500,000, the home sells for $400,000, and they net $360,000 or $365,000 to satisfy that mortgage—where are they going to get back that $140,000 or $135,000 difference?
Many times, they get these funds back through mortgage insurance, but they have to see how those clauses were written originally. That’s why there is a lot of behind-the-scenes investigation during a short sale. Usually there are several investors, so it could be somebody that’s servicing the loan for—say— Wells Fargo. There might also be several different companies that are serviced by them. They’re gathering that information and taking it back to the investors and combing through what insurance premiums they have to offset those losses.
After that, it’s a question of what those investors are willing to take. Sometimes they ask the seller to pay a portion of that loss. One of the other major factors to consider is tax deficiencies—maybe you lost $50,000 and now you have to claim that as income.
Sometimes it’s not just agents giving you that information, which is why it might be helpful to talk to a real estate attorney or an accountant who’s familiar with short sales. There are several people involved in the process who can help you.
If you have any more questions about short sales or need a referral for a good accountant or real estate attorney, don’t hesitate to give us a call. We’d be glad to help you.