Real Estate Information Archive

Short sales are called "short" because you, the homeowner, are short on the money needed to pay back the loan. So the only way you can sell, other than paying out of your pocket, is to get the lender to pay for your sales costs out of the proceeds of the sale. However - these sales are anything but short in time.

I had one recent short sale close in 3 months from start to finish. That is probably about as good as it gets. However, I still have one that is now 7 months old, and we just hit yet another road block with the lender.

This one got an immediate offer when we first put it on the market in February 2011. It took 3 months for the lender to approve it. The first delay was the lender who said they could not consider the short sale because the homeowner was not late on their payments. I resubmitted the file on the 31st day, and voila, they started to review the file. After 2 more months of negotiations - and well, sitting around waiting for them to respond, they finally gave us full approval. With that news, the buyer cancelled the contract.

It then took 2 months of regular price drops before getting another offer. We priced dropped a small amount at a time hoping to induce an offer at each level. When an offer finally did come in - the lender countered at a price that we had long since passed through on the way down. In other words, they are convinced that the condo is worth what we have proven it is not worth.

Now, 8 months since we started, we have to start what they call a "dispute of value" process. They can't tell me how long these take, but you can bet that it will be at least a month. Should the lender deny the dispute, or the buyer change their mind during that time - we could be at square one all over again.

So are short sales for you? Well, 3 months is about as quick as they go. I've heard others have short sales go 2 to 3 years. But if you aren't paying your mortgage, and in the end you get the lender to pay all sales costs, it may still be worth it. Call or email me to discuss your situation to see if we can help.

I won't recommend that you will stop paying your mortgage.  But I did recently have to tell one of my San Francisco short sellers that her lender would not even look at the file unless she was delinquent on her mortgage.  She explained that she had just missed her last payment about 10 days prior.  I called the lender again and they refused to budge until it met their "guidelines" for being late.  Yet they refused to tell me what that guideline was.  A little deductive reasoning and I guessed that it was just 30 days late, so I re-submitted her short sale package on the 31st day, and sure enough the lender opened her file.

So should you stop paying your mortgage?  That is a personal and financial decision that only you can make - and I would STRONGLY advise you to seek legal and tax counsel when making that decision.  But I can tell you that your lender may give you no choice but to miss a payment.

Short Sales are often free.  But if you have a good paying job and/or money in the bank, your short sale may not be free.  The lender may ask you to contribute cash to close.  However, this is still usually cheaper compared to your other options.

First, let's compare to the costs of a regular sale.  If you have to sell a $1 million condo in San Francisco, your transaction costs are probably going to be 6% to 10%.  I realize 10% sounds like a lot, but consider if you need to paint, stage, move out and carry your mortgage while paying to live elsewhere, etc, etc.  So it isn't just commission, closing costs and transfer taxes.

However, in a short sale, chances are you won't paint or stage, and usually you are not paying your mortgage (here's why that is often true).  So those costs get eliminated.  Next, the lenders usually pay the commissions, closing costs and transfer taxes.  So in fact, your short sale experience may not cost you one cent.

However, if you have money in the bank or assets and/or a good paying job, your lender may ask you for a cash "contribution".  But I had one where the lender asked for a 1% cash contribution before approving the sale - that amount was equivalent to just over one month of mortgage payment.  Strangely enough the lender REQUIRED that the homeowner be delinquent on her mortgage before they would consider the short sale.  By the time it got approved she had missed roughly $12,000 in mortgage payments, and they only wanted her to pay about $5,000 as her contribution.

Lenders make many strage decisions - but in this case it PAID to short sell - and this was a person who had money in the bank, had a good paying job and had already bought another home.... and yet the short sale got approved.

"I'm rich, can I still do a short sale?"

OK, no one has come straight out and asked me that question quite that way.... after all, who would actually say that out loud? But I know many are wondering whether or not they can do a Short Sale if they make good money, or have cash in the bank. Frankly, I wish people would start asking that question. I see banks and businesses shucking off their loans, so why not consumers? If your home is massively under water, and you can't afford to sell, or don't want to spend your life's savings or most of it in selling - you should be asking this question - can I do a short sale, in San Francisco, when I have a good paying job and money in the bank?

The answer increasingly appears to be "yes". It used to be a flat out "no", but it appears that strategic default foreclosures - meaning anyone who can afford their home, but chooses to let it get foreclosed on - have forced lenders hands.

Apparently lenders have discovered in recent years that they make less money in foreclosures than they do in short sales. Of course what they really want is for you to keep paying your mortgage. But as more and more people purposely choose not to keep paying their mortgage, lenders are jumping all over themselves to help even rich people do short sales.

I recently had a homeowner show me a letter from his lender offering him $15,000 in cash if he did a short sale.... and he had money in the bank, and a good income. Another short sale that I got approved was someone who bought a one-bedroom condo in San Francisco when she was single, later got married and bought a home outside of the City with her new husband, and after trying to make a go at being a landlord, but losing money month after month, they put it up for a short sale. The lender approved that sale asking for only 1% of the sales price as a cash contribution from the Seller to get it done.... more on that story here as this REALLY paid off for this particular seller, let me explain....