This is one of the most common misconceptions. The reality is that banks do not want to foreclose on your property because the foreclosure process is incredibly costly. Banks receive more on their investment through a short sale than a foreclosure.

The qualifications for a short sale include:

• Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
• Monthly Income Shortfall – “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
• Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

Myth #2 – You Must Be Behind on Your Mortgage to Negotiate a Short Sale

While this may have previously been the case, today lenders are looking for verifiable hardship, monthly cash flow shortfall, or pending shortfall and insolvency.

If you meet these three requirements and believe that you soon may be unable to afford your mortgage, act immediately.  Do not wait until the foreclosure has started and you have even less time left.

Myth #3 – There is Not Enough Time to Negotiate a Short Sale Before My Foreclosure

This is a myth that probably hurts homeowners the most. Many do not realize that foreclosure is a process, and that there is time to make decisions that may result in better outcomes.

The foreclosing party—in most cases a lender—can stall a foreclosure up to the final day of the process. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will stall a foreclosure with a legitimate contract. For real estate professionals who understand foreclosures and short sales, there is time available until the foreclosure process is complete.

Myth #4 – Short Sales are Impossible and Never Get Approved

This is a complete falsehood. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not.

Myth #5 – Banks are Waiting on a Bailout and Not Accepting Short Sales

You may have heard this, but the reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties.  Today, more banks are aggressively pursuing short sales and working with agents who understand how to process them.

Myth #6 – Buyers are Not Interested in Short Sale Properties

This is a myth that potential sellers hear all the time. Thankfully, this is just not true. In fact, we are getting calls from buyers who say they only want to look at foreclosure and short sales.

For buyers, short sales and foreclosures have become synonymous with “good deals.”.  Listing with an experienced agent who is educated in the short sale process will provide you with a great chance of quickly seeing a contract on your property.

Now you want to know, what are the advantages of a short sale?  The advantage is that you are probably going to pay less for the house than it is valued at.  This means that you are moving into a home with instant equity.  Often homeowners who find themselves in a short sale situation don’t have the time to wait 85 days because they are unable to make the payment on their home, this means that they are selling the house below market value in order for it to sell quicker.

A big question at the present time is “Are you a first time home-buyer?”  If so, the federal government is offering an $8000 tax credit to all first time home-buyers or anyone who has not owned a house in the last three years.   In order to receive the tax  credit you must close on your home before December 01, 2009.  With a short sale the process can take anywhere from 30 days to 180 days with most taking 60 days.   This is because although the current owners are the sellers they are not going to be paying back their loan to the bank so the bank must approve the offer that you make.   This means that if you are considering a short sale and are a first time home buyer you need to be looking for a home immediately or you are going to risk losing the $8000 the government is offering you.

So what is the down side to a short sale?  I have already mentioned that it takes a lot longer to close but it also gets more complicated than that.   Often the bank takes a while to respond to the offer, this means that you (as the buyer) are waiting for an answer.  Buying a home can be a stressful process so just proceed with caution when purchasing a short sale as a home-buyer.  They are a wonderful investment opportunity for a buyer, you will need to make sure that your Realtor is fully versed in negotiating a short sale.  Not all turn out bad but just be aware that you may be waiting a lot longer than usual before knowing if this house is going to be your future home.

What is a Short Sale?

A short sale is when the lender(s) agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the home.

What is in it for the Seller?

The ideal scenario would be for the seller to catch up on their payments and stay in their home.  But for an increasing number of homeowners, this is not a realistic possibility.   This is why they look at Short Sales as a way to resolve the problem rather than hide from their lender.

As a seller, there are myths to a short sale, such as you will lose your home (but that will happen anyway with a foreclosure) or that you have to be behind in your payments – both are not true at all.   There are pros as well, such as your credit score will recover faster than with a foreclosure.

What Motivates the Lender?

Why would a lender let you walk away from the home and forgive the shortfall on your loan? To save time and money.  The foreclosure process is a long and very expensive process for the bank.  Once the bank realizes a foreclosure is eminent, a Short Sale may seem like the lesser of 2 evils.  Also, with a short sale the property was never listed as a foreclosure, therefore improves the lenders foreclosure rate not to mention the property continues to be inhabited and maintained so it doesn’t become a blight on the surrounding neighborhood.

Negotiating a short sale is not for the faint of heart.  It can be very time consuming and take months to negotiate from start to finish.  A well put together short sale package along with an experienced Realtor will net the best results with dealing with the lender.