Three or four years ago, the term short sale was not familiar to most home buyers. When the housing bubble burst, everything changed! The term “short sale “is becoming a familiar one as homeowners are finding themselves unable to keep up with their mortgage payments, yet unable to sell their homes for enough to cover the outstanding debt since home values have dropped. Key West has not been untouched by this. Before going into the ins and outs of the short sale, let’s cover some of the basic information.

First, let’s talk about what a short sale is. In this case, the lender agrees to allow the seller to sell property for less than what is owed on all liens and mortgages.  Normally, the lender also agrees to forgive any remaining obligation the seller may have had. Lenders are not anxious to accept less, but may consider a short sale as less costly to them than processing a foreclosure. It is not equivalent to walking away from a mortgage.

There are various reasons why a property owner might request a short sale on their home. Death of spouse or partner, illness, and divorce are the most common circumstances that leave a home owner unable to maintain their current mortgage. In the current economy, loss of employment is at the top of the list, along with having negative equity in the property. Over all, the borrower must show they have an inability to pay their mortgage due to a currently experienced hardship.  

Some lenders will attempt a loan modification first to see if they can help the home owner stay in their home. Short sales are often a last attempt to avoid foreclosure. The difference is tremendous when it comes to salvaging the borrower’s credit rating. A short sale typically will drop a credit score by roughly 50 points. A foreclosure, on the other hand, will decimate a credit score with a 200 point freefall.

In the past, short sales used to take anywhere from three to six months to complete. April 5, 2010, new treasury guidelines will take effect. They will greatly increase the speed in which short sales are completed! The streamlined program is only through December of 2012 and is an attempt to help ease the burden on distressed homeowners.

The new rules state that once a proposal has been received by the loan servicer, they will have 10 days to accept or reject the offer. Closing will be within 45 days UNLESS the borrower agrees to an extension. Some lenders are already applying the guidelines now, rather than waiting until April. This is good news for those looking into short sales.

2010 may very well be the year of the short sale! If you have more questions regarding short sales or Key West real estate in general, call Margarita Villoch! She is your island life real estate expert!