What type of situation is best for a short sale?

Most short sales close after the homeowner is delinquent on their mortgage. This means the homeowner is at least 1 payment behind. Recently, more mortgages that are simply behind or “in default” are considered short sale candidates without actually being in foreclosure. The homeowner typically has negative equity which equates to no equity in the home. In other words, the total balance owed on the mortgage is equal to or greater than the price at which the house can be sold. This situation is growing increasingly common due to the availability of high LTV loans such as 90%-100% mortgages (no money down) as well as the recent decline in home values. This is particularly prevalent in the Southern California area. In Southern California there is a surplus of homes for sale and prices have declined 20%-35% in the past year.

In addition, the homeowner must have some type of financial hardship that is preventing him/her from paying the mortgage. (i.e. a commonly job loss, medical bills, disability, or some other hardship)

A typical situation for a short sale is:

  • Homeowner purchases a home for $500,000 in 2003 with 5% down payment; the mortgage balance is
    $475,000.
  • By 2005, the home’s value has increased and interest rates have declined so the homeowner refinance
    at 100% to pull cash out. Home value $600,000, new mortgage $600,000.
  • In 2006, a homeowner gets laid off and continues to make payments from savings, hoping to land a
    new job soon.
  • By 2007, savings are gone and still no job. Homeowner begins to miss payments and decides to sell the
    home for $600,000.
  • As months pass, the home has not sold because values have dropped back to $500,000 and the
    foreclosure process has begun. The Real Estate Agent presses to lower the selling price to entice
    prospective buyers; however that would require the homeowner to come up with cash at closing to
    cover the mortgage shortfall.
  • Homeowner is stuck in the house and the foreclosure is proceeding.

To receive a complimentary Short Sale Information Package or set up a confidential appointment, please contact The Soussé Group or call us at (714) 412-8512.