MaryAnn Dempsey: WHAT IS A SHORT SALE?

Sunday, December 12, 2010

WHAT IS A SHORT SALE?

Question: What is a short sale?

Simply put, a Short Sale is used to describe the sale of a home in which the homeowner owes the bank more than the home is worth. The bank agrees to allow the home to be sold for less than what is owed (AKA “Short Sale”). Basically, the bank is agreeing to take less money for what is owed on the loan.

Question: Would I qualify for a Short Sale?

Yes. Contrary to popular belief, it is not difficult to qualify for a Short Sale. A good Short Sale candidate has no equity in their home. They are not able to sell their home and pay off all of the outstanding loans/debt that are secured against their property. If you owe more against your home than it is currently worth and want or need to sell it but can’t or won’t bring cash to closing to make up the difference between what you owe and what your home is worth, then you are a prime candidate.

Question: Is doing a Short Sale right for me?

We would like to say: “Yes!” But the truth is, short selling their home isn’t the right move for everybody. Here are a couple of important signs that can help you determine if doing a short sale is right for you:

You are behind on your mortgage payment and are unable to keep up with all of your monthly obligations. Some of the reasons for falling behind on your mortgage payment may include sudden change in monthly household income, loss of job, divorce, and more.
You are NOT behind on your monthly mortgage payment but know that you will soon be unable to keep up with all of your monthly obligations and therefore in the near future will not be able to afford to keep your home.
You are NOT behind on your monthly mortgage payment but need or want to move. Reasons could include a job transfer, a health reason, retirement, and more.
You are NOT behind on your monthly mortgage payment and have come to the decision that staying in your home is not a good “business decision” or “financial decision.”

If you match any of these scenarios then doing a short sale could be the perfect solution.

Question: Why would the bank agree to a short sale?

With foreclosures on the rise banks are looking for any way they can to decrease the amount of loss due to these foreclosures. Basically, it is much more cost effective for a bank to do a short sale rather than a foreclosure.

Banks are in the business of owning real estate and collecting monthly mortgage payments, so a bank will take a minor loss in a short sale to start that payment cycle again. The truth of the matter is that a bank can minimize their loss by 10%, 20% even 30% in a short sale over a foreclosure.

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Report: U.S. Investigating S&P Over Mortgages

Another investigation as to whether Standard & Poor's improperly rated dozens of mortgage securities in the years before the financial crisis. The investigation began before S&P a downgraded long-term U.S. debt from a AAA rating to AA-plus this month. In the mortgage investigation, the Justice Department is asking about instances in which S&P analysts wanted to assign lower ratings to mortgage bonds but may have been possibly overruled by S&P business managers. Why would the Justice Department spokesman decline to comment on the story? S&P is not immediately responding to calls. It is not clear as to whether the Justice Department investigation is also involving other ratings agencies, such as Moody's Corp. and Fimalac SA's Fitch, or only S&P. I guess the paper quoted someone for S&P, via email that the agency had received several requests from different government agencies over the last few years and that it was cooperating with these requests. Despite the outcry over the ratings agencies' failures in the financial crisis, investors still rely heavily on ratings from the three main agencies for their purchases of sovereign and corporate debt, as well as other complex financial products. Some companies and some countries, but not the U.S., pay the agencies to receive a rating. For decades, the government issued rules that banks, mutual funds and others could rely on a AAA stamp of approval for investing decisions - which bolstered the agencies' power. A successful case or settlement against a giant like S&P could accelerate the shift away from the possible traditional ratings system. For instance, maybe the Dodd-Frank financial reform overhaul sought to decrease the emphasis on ratings, but bank regulators have been slow to spell out how the reform would work. S&P has been under fire from lawmakers, market players and the Treasury Department since its decision to cut the U.S. credit rating. The Securities and Exchange Commission was also reviewing whether S&P followed all of its policies leading up to the credit downgrade, according to sources familiar with the review. This blog is soley my opinion from the facts I have gathered via, the news only.

MaryAnn Dempsey