As homeowners grapple with declining home values, and in some instances, mortgage payments that have dramatically increased, GreatWest GMAC Real Estate professionals are increasingly be queried about Short Sales.
Often a seller will become concerned because they are unable to make house payments, but do still have an ability to make all or part payment of the negative equity. They may hope to also hope to preserve their credit score. They wonder if a short sale will be right for them.
The answer is, probably no. Sometimes if a seller is able to pay back all or part of the negative equity, usually to the 2nd lien holder, they may be able to work out a repayment plan. The lender will likely release the lien and allow the home to close escrow.
One seller wondered why mortgage insurance wouldn’t cover any deficiency amount, if the seller defaults on the loan. The answer is that mortgage insurance is for the mortgage lender’s protection, not the seller’s protection.
Ironically, mortgage insurance doesn’t usually kick into gear until the property has been defaulted on, or is close to default.
During the “Short-Sale” process, one of the things which can make negotiation with all parties so long and arduous, is the fact that if the seller is current on payments, but having difficulty, the mortgage lender may in the early stages be reluctant to negotiate aggressively. After all, the bank has not yet lost money, and is somewhat in the “cat-bird” seat if mortgage insurance is in place on the property. In many instances, any “short-sale” offers, which are acquired, may be looked upon with some hesitance, unless the seller has began to get significantly behind in payments.
Eventually, the mortgage insurer may enter the negotiations, and it becomes a poker game between the seller, the mortgage lender, and the mortgage insurer, and sometimes even potential buyers, to see who is going to absorb most on the difference between what is currently owed on the property, and what the property is actually now valued. During this process, any potential buyers may see their offers countered with an increase price as well.
Often buyers will become excited when they see a property marketed as an “approved” short sale. It is important to understand that technically, there is no such thing as being “Short Sale Approved.” If all parties to the sale come to an agreement via accepted offer, than that would be an “approval.”