Cover story: Big benefit in short sale for seller, buyer

Homeowners who are “underwater” in their homes - owing more on their mortgage than the value of the home - can turn to a short sale to avoid foreclosure. Simply put, a short sale is accomplished when the homeowners sell the property and their lender or multiple lien holders agree to accept the sale price as payment on the loan.

In December, a client of Matt Martin Real Estate Management in Vienna completed a short sale on her home. She and her husband, who do not want to be identified for privacy reasons, were transferred for work. They were unable to sell their home for more than they owed on the loan.

“We rented the house for a while, but the rent we were able to get did not cover the mortgage payment, so we began dipping into our credit cards to pay our bills. We contacted one company to help us with a short sale, but they charged us money upfront and never helped us. We got in touch with another Realtor, who worked with Matt Martin, and they were able to make arrangements with the lender for a short sale. We had three offers on the house in August and then closed in December,” she said.

It was a happy ending for this couple, since their lender agreed to take the sale proceeds. They did not owe any additional money to the lender, to the Realtors involved or in taxes. In addition, the couple’s credit scores, while slightly lower, remain in the 720s.

“We were so relieved to be able to avoid a foreclosure on the property,” she said. “Not only would that have had a negative impact on our credit score, but it would have hurt the neighborhood, as well.”

Zillow.com reported in May that more than one-fifth of Americans owe more on their mortgage than their home is worth. For homeowners who can pay their monthly debts and do not need to move, being underwater is unpleasant and worrisome. For those who must move because of a change in life circumstances (such as a job loss, medical emergency, divorce, death or job transfer) or because they can no longer afford the payments, owing more than the value of the property is a much larger problem that could lead to a foreclosure.

A short sale can be a better solution because the long-term consequences are less painful than a foreclosure.

Karen Ricciardi, a Realtor and Certified Distressed Property Expert (CDPE) with RE/MAX Select Properties in Potomac Falls/Sterling, says, “A foreclosure will stay on your credit record for seven to ten years. On top of that, every time you apply for credit in the future, you will be asked if you have ever been foreclosed on, and you have to admit the truth.”

Ms. Ricciardi stresses that short sales are designed for people who have a demonstrated need to sell their home, not for people who just want to sell or get rid of a mortgage they don’t want to pay.

“A lot of people who can’t afford their payments but don’t want to sell will try a loan modification before a short sale, but often even this won’t solve their financial problems,” said Fernando Herboso, a Realtor with Key Realty Group in Gaithersburg. “If the family does not have any other assets, then a short sale may be the best solution. The household will have to walk away from their home without any cash, but at least they can move to a home they can afford.”

Short-sale experts agree that homeowners should get in touch with their lender as soon as they know they will be unable to keep making loan payments.

“Borrowers should call their lender and explain their situation and then immediately call an experienced real estate agent who understands the short-sale process,” says Emmaniece Gordon, an associate broker and CDPE with Keller Williams Realty in Millersville. “An agent should do a comparative market analysis to get an idea of the current market price of the home to evaluate if there is any equity in the property.”

Pricing the property correctly is crucial to a successful short sale.

“Borrowers need to get their home on the market as fast as possible, but they need to be sure it is listed at the true market value, not at the price they need to pay off all their debts,” says Matt Martin, president of Matt Martin Real Estate Management in Vienna.

Homeowners should continue to make their payments as best they can during the short sale process.

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