Michael Golden of the Chicago Association of Realtors answers the most frequently asked questions on how the Short Sale process really works.
1) What is a Short Sale?
When a property is sold for less than is owed by the mortgage or mortgages. Can only happen when a bank approves those transactions, which means you add a third party to the contract: buyer, seller, bank. Most SS revolve around properties where there is more than one mortgage, first and second, and most of those sales are when someone used both when they bought the house. 80-10-10 loan: 80% from first lender, 10% from second, 10$ from buyer. Most of the time, short sales are with more than one mortgage. Not enough equity in them.
2) How does it work?
3) Who qualifies for a short sale? Will a lender entertain a short sale if a homeowner isn't in foreclosure?
Yes. I think they actually prefer that, once the foreclosure process starts, it's going to be much more difficult to have a successful SS.
4) What is the time frame for a short sale approval?
It's all over the place, for a buyer may be at the closing with no signed contract. At least not signed by everybody, can go right to the closing without it signed. Buyer can end up going to the closing and not have the closing take place because the bank can decide. There's a new field that's going to be in MLSNI so that you can check off "short sale" and it will automatically put in the remarks that say that it is a short sale, and that the contract and the cooperative commission are subject to approval by third party. If you go to the closing, first place lender will look is agent, and we don't have lien rights, as an agent you could do a closing and discover that you're not getting paid.
5) What are the benefits/risks to the homeowner to do a short sale?
It gets them out of a mortgage that they can't afford, keeps the house from going into foreclosure, more difficult when you have a foreclosure on your credit. Benefit to the lender would be that they get some money, maybe not all, but some and also generally speaking if a house goes into foreclosure, person on mortgage gives up, condition of home suffers.
Chicago Association of REALTORS
200 S. Michigan Avenue # 400
Chicago, IL 60604