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Is a Short Sale Right for Me?

If you need to sell your home for any reason and you are like most of San Diego’s 30% of “underwater” homeowners who owe more on their homes than they are worth, then a short sale is most likely your best solution.

Do not be misled into thinking that there needs to be some profound reason to do a short sale.  There are multiple reasons on why you may need to sell your home, some of which may be financial hardship, loss of job, divorce, or job relocation.  For each person, the reason will be different, but at the end of the day, if you owe more on your property than you can sell it for, a short sale remains the best solution.

 

Understanding some of the benefits of a short sale over your other options, can help in determining if a short sale is right for you.

  • Debt Forgiveness –

    One of the biggest benefits of a short sale is having the loan balance debt forgiven.  As an example, if your mortgage is $400,000 and you sell the home for $300,000, then the remaining balance of $100,000 will be forgiven by the lender, which will also include HOA dues, all property taxes, all real estate commissions, transaction-related closing costs, and sometimes other debt secured against the property.  Many of our clients have a hard time believing that such a thing is possible…to have a bank actually take less, releasing the debt burden from your shoulders.

    As irrational as your lender can seem, the lenders now understand that it is in their best interest, too, to complete a short sale with you, as opposed to foreclosing on your debt.  There are many reasons for this, including the cost savings of foreclosing on the property, evicting occupants, making repairs and keeping up maintenance on the property, and other substantial holding costs.  However, realize that it is extremely important to work with an experienced short sale Realtor®.  Just because the debt is being cancelled does not mean that the lender cannot exercise the use of a deficiency judgement.  If your Realtor® is not proficient in short sale negotiations, the deficiency judgement may unknowingly show up in your short sale approval agreement, becoming your worst nightmare.   Note that as of July 15, 2011, CA Senate Bill 458 protects homeowners from lenders exercising such deficiency on certain types of loans.

  • Lesser impact on your credit –

    Another huge benefit of a short sale compared to foreclosure is it’s lesser impact on your credit ratings.  Recent research and simulated models as produced by FICO showed that a consumer credit profile with no deficiency balance (remember, no deficiencies in CA; see CA SB-458) caused the score to drop by 35-55 LESS points in comparison to a foreclosure’s impact.  35-55 points on your credit profile could equate to as much as 3-years of extra time to rebuild your credit score.  As you can see, this will also play directly into how long before you are able to qualify for another home loan, as well as other types of credit.  For more detailed information, view How Will a Short Sale Affect my Credit.

  • Ability to purchase a home again –

    In most markets, it still holds true that home ownership is financially more prudent than renting a home.  In most of our clients situations, their ability to purchase a home again will be quicker and easier following a short sale as opposed to a foreclosure.  Not only are the credit impacts less severe, but the housing markets are generally more affordable in the years following high foreclosure and short sale markets.  For most homeowners, the exact reason that they are in need of short selling their home is due to high mortgage balance(s), which typically means that the mortgage payments were high.  Many homeowners purchase a home again after a few years of credit re-building, most likely with a lower purchase price, lower mortgage, and in turn, a lower mortgage payment than they were experiencing before.  In fact, a few of our clients have gone on to purchasing a home in their same neighborhood as they were living in previously for $200,000+ less than they had initially paid for their short sold home.  Less than 3 years after their short sale and they were living in a similar home with a monthly mortgage payment of nearly $1,700 less than before.

  • It’s not a foreclosure!  –

    In a short sale, the process and steps of selling your home are essentially the same as if you were traditionally selling your home with equity.  You will have knowledge of who you are selling your home to and you will know who will be taking over your hard work.  Many of our clients’ neighbors have no idea that they are short selling their home, and nor is there any significant stigma associated to it.  From the outside, with a ‘For Sale’ sign in your yard, you are just selling your home, as people do.  On the other hand, in a foreclosure, you will only have the lender’s staff peeping around your property, notices constantly taped to your front door, and in worse-case situations, a sheriff knocking at your door.  Your neighbors may know that something is going on at your property, but one day they will drive by and – you, the Smith family – will be just gone!  “The Smiths were foreclosed on” is the typical assumption.

In our opinion, the best way to make a prudent decision is to educate yourself. Keep reading…

 

Contact us for help in understanding and establishing your best solution.

The information contained herein has been provided by San Diego Board of REALTORS®. This information is from sources deemed reliable but not guaranteed by San Diego Board of REALTORS®. The information is for consumers' personal, non-commerical use, and may not be used for any purpose other than identifying properties which consumers may be interested in purchasing.

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