How Do Short Sales Work?
Since the market turned back in 2007, we have seen plenty of short sales hit the New Jersey real estate market. What are short sales and how do they work?
Short sales are a lot like pre-foreclosures. In most cases, the homeowner is experiencing some kind of hardship in their life. They may have lost a job or had an adjustable rate mortgage that just spiked. Ultimately, something has happened and the homeowner can no longer afford the payments, so they fall behind.
These homeowners are not sitting on large amounts of cash in the bank and they are in a position where they don’t have any equity in the home. They actually have to pay more on the home than what it is worth in today’s market. When you add in closing costs and other factors, that makes it difficult for these homeowners to sell the property and walk away with a check at closing.
When there is negative equity on a property, the homeowner may opt for a short sale. Despite being called a short sale, the process can take a long time. The offer needs to be approved by the bank. The bank needs to feel that they are getting a fair price for the property. If we successfully negotiate the short sale, the bank will agree to sell the home at a loss. In other words, the bank will agree to sell the home for less than what you owe them.
The bank offers the short sale option because the other choice is a foreclosure, which is an extremely lengthy process. In New Jersey, banks have to file litigation against the homeowner during a foreclosure. The courts are very backed up right now; in fact, New Jersey is actually the number one foreclosure state in the nation. There are plenty of people missing their payments and there are plenty of short sales out there.
If you have any other questions about short sales or about real estate in general, give us a call or send us an email. We would be happy to help you!