Short Sales: Hurdles and Consequences
Short sales continue to be a huge factor in the Twin Cities housing market.
How do I know?
I’ve been showing a new client who’s a first-time Buyer properties within 5 miles of South St. Paul the last few weeks, literally from Maplewood to Cottage Grove. Out of perhaps 100 homes I’ve screened online that met the client’s criteria (price, square feet, number of bedrooms and baths, etc.), I’d estimate that more than two-thirds were “potential short sales.”
In fact, the percentage is likely even higher, because invariably when the MLS field asking for short sale status is left blank . . . the home is a potential short sale.
Even taking into account the lower bracket price range (under $200k), those numbers are staggering.
New MNAR Form
Another sign that short sales loom large is a new form that the MN Association of Realtors has rushed out to help Realtors and their clients deal with potential short sales.
The forms lists the following seven “risks and ramifications”:
1. Failure to obtain approval from all lender(s)/creditor(s) with a mortgage/lien against the property may prevent the sale from closing.
2. Short sale approvals from all lender(s)/creditor(s) are time consuming, may delay closing, and may not be accomplished within expected timelines.
3. Creditors will likely require disclosure of personal assets and financial records, including copies of tax returns, to determine approval of a short sale.
4. A short sale may require seller to pay off some or all of the amounts owed after closing.
5. Seller’s credit will be impacted as a result of a short sale transaction.
6. Seller may incur tax consequences as a result of a short sale.
7. The approval of a short sale is never guaranteed.
Got all that?
Neither do most Sellers.
In fact, the form goes on to recommend that the prospective short seller consult with appropriate “tax, financial, and legal advisors” to determine if a short sale is appropriate.
My guess is that someone too financially strapped to pay their mortgage either doesn’t have an attorney or accountant — or doesn’t have the money to pay them.
No wonder something like 75% of all short sales progress to foreclosure.