I usually let my real Real Estate life give me the inspiration for the article that I write each week. It makes me so excited when I find out that someone actually benefits from it so I hope that this one hits the mark as well. Lately there are more questions than answers so I thought I would take a minute to answer some questions that I get from customers in this ever changing market. These are actually questions from actual wonderful customers.
Q: Do you have to be a resident of Florida to do a short sale in Florida?
A: That is an easy one, and the quick answer is NO. Where you live is not important in whether you qualify, what is important is if you have a hardship or not. The thing that may be relevant to you is that if you are trying to short sale a property that is not homesteaded then there can be consequences. A lending institution can give you a 1099 on the discounted amount of the sale. I would suggest that you talk to an accountant about your unique situation. Many times you are already in such duress that the 1099 may or may not effect you much but again that is a question for your accountant.
Q: How long does a short sale take?
A: When I give you the answer you will wonder why in the world they call it short because the average time is 3-4 months from beginning to end. Patience and Persistance is the key during this long process.
Q: What in the world is that AS IS contract that so many short sales require?
A: Quite simply an AS IS contract is not like the old used car you drive off the lot and hope the engine does not fall out before you get home. An “AS IS with right to inspect is a contract that gives you the right to inspect the property to see if it will fit your needs without breaking the bank. There is a time limit which you specify in the contract but in Florida any buyer has the right to get out of the contract and get his earnest money back if the inspection is not acceptable to the buyer. MOST foreclosures and Short sales require an “AS IS” contract. Be sure to check the laws of your state because contracts do vary from state to state.
Q: What happens to my credit when I do a short sale or a foreclosure?
A: A credit bureau is the only true source of information for determining how a short sale and a foreclosure is going to affect a homeowner’s credit. It is my experience which is not to be taken as any form of legal advice, foreclosures usually show up as “FORECLOSURE” and can stay on a credit report for seven years. If a homeowner applies for a new loan or has their credit run, the foreclosure could show up. It is also a common disclosure many employers require on most job applications. A short sale is commonly listed as “SETTLED DEBT”, and can be much less harmful to credit. Please consult a credit bureau for how a short sale and a foreclosure will actually affect a homeowner’s credit. Most people are in financial straights by the time they consider a short sale so their credit is usually the last of their worries.
Q: Why would a bank even consider a short sale?
A: Time is Money. Foreclosure action is expensive and lengthy. During the 12 month or longer foreclosure process, the property is a non-producing possession that is declining in value every day. If the property becomes vacant and/or vandalized, it will cost the lender(s) even more in repairs, maintenance and security. When a foreclosure is complete, the lender(s) must still hire a local Broker to list and sell the property. The lender(s) will compare the cost of the Foreclosure vs the cost of Short Sale. If there is little or no equity in the property, the lender(s) will have to conclude that its better off accepting a short and immediate sale. Lender(s) would rather help you find ways to come current on your home mortgage or approve of a short sale than foreclosure.
Q: When should you make the decision to start a short sale?
A: AS soon as you are no longer able to make your payments due to a job loss, illness, change in financial status, divorce or an adjustable rate mortgage that has risen to unmanageable limit you should consider a short sale. I know many people that are just frozen and just want to let the cards fall where they may and just wait for the foreclosure process. Doing nothing assures that a foreclosure is pending which could be the worst possible solution for you.
Bottom line: trust your friends for dating, hair cut opinions and just plain old fun but for Real Estate go to your trusted Realtor and see what she has to say on the subject. If she does not know the answer I bet she can help you find out. Thanks to all of you who keep calling me with your questions and thanks to all my Real Estate croanies for all your great answers.