Distressed sales were a rarity in most real estate markets, prior to the bubble burst in the mid 2000’s. Since then, some areas have peaked with distressed sales accounting for almost half of an area’s real estate transaction. Once uncommon, the “short sale” has been an exercised option for a large number of homeowners.
What is a short sale? A short sale is a bank-approved transaction, where the homeowner is still the seller of the home, however the property is selling for less than the mortgage on the property. Because of the loss, the lender is involved in the approval, and possible negotiations, of the final sale. The benefit to a short sale – the seller typically lives in the home, keeping utilities on and maintaining the property, therefore making it easier to sell and keeping it off the bank’s inventory list. The easiest way to remember a short sale – it is a pre-foreclosure. The home is on it’s way to being acquired by the bank due to mortgage default, however the bank and seller are working together to find a qualified buyer and prevent the foreclosure process.
Short sales can, and often times do, take longer than a standard real estate transaction. In the past, buyers were willing to wait it out – because they felt that they were “getting a good deal.” And sellers were more apt to pursue the short sale route, due to the “Debt Forgiveness Act”, that expired on 12/31/2013. Now, without that benefit, speculation is that sellers are not going to participate in short sale programs, and simply foreclose. And, as interest rates increase, buyers are being to stray away from waiting for short sale approval. A delayed approval can result in a higher mortgage payment.
Which leads us to wonder…..Is this the beginning of the end of short sales?