Although selling a Columbia SC house for less than the amount owed on the mortgage (aka a Columbia SC short sale) has become more and more commonplace these days, such sales are packed with complications that can cause the deal to unravel.
Things to Watch for With a Columbia SC Short Sale
Often times, the house is not advertised as a Columbia SC short sale because the seller doesn’t have the authority to do so. It’s all up to the lender.
Many lenders will not even discuss a Columbia SC short sale with a seller until a purchase contract is in place. That simply means the buyer who makes the first offer is really more of a guinea pig, because nobody knows whether the lender will even accept a short-sale offer.
A Columbia SC short sale is sometimes listed at a “ridiculously low price” just to get the ball rolling. Sellers may agree to any offer just so they can begin negotiations with the lender. Since the seller in a Columbia SC short sale won’t be taking any money from the sale, they may be eager enough to get out from under the mortgage they will accept just about any offer. But the lender holding the mortgage has the final say as to whether that low-ball offer will be accepted or not.
A Columbia SC short sale can be a long, drawn out process, especially if the seller doesn’t have his paperwork in order. Again, it’s imperative to remember, the lender can change the rules at any time during the process, forcing everyone to start all over again.
Many times, lenders will approve a short sale offer, but they set the date you must close so close to the date they approve the sale, the buyer doesn’t have time to get all of their ducks in a row, like getting a home inspection, finalizing their financing, etc., making the whole Columbia SC short sale process a trying time on everyone’s patience.
Talk with us before you entertain the idea of making any offers on a Columbia SC short sale. We may be able to save you a lot of time and frustration in the process by helping you be more aware of circumstances surrounding the property that is for sale.
Columbia SC short sales could grind to a screeching halt at the end of the year, and here’s why.
Columbia SC Short Sales – What Exactly Are They?
A short sale is when the bank allows a home to be sold for less than the value of the mortgage. The bank takes the loss, but that loss is generally less than a more costly foreclosure. A short sale is debt forgiveness. Debt forgiveness is taxable. This is where it gets complicated.
The government has been pushing more short sales at Fannie Mae and Freddie Mac through financial incentives, and banks are streamlining the process. Columbia SC short sales have been gaining so much steam, they actually surpassed sales of foreclosed properties this past spring, according to LPS Applied Analytics’ Home Price Index. But all the progress that has been made could end abruptly.
In order to help the huge volume of troubled borrowers and promote more short sales, Congress passed the “Mortgage Forgiveness Debt Relief Act and Debt Cancellation” in 2007. The debt forgiveness from a short sale or a mortgage principal reduction would no longer be taxable. That act is part of many Bush era tax cuts that expire at the end of this year. Without an extension, Columbia SC short sales would grind to a halt, as might mortgage modifications that involve principal reduction.
So what is the possibility of congress extending the tax relief? One Hill-watcher puts it at 60-40. The Senate Finance Committee passed a package of tax extenders right before the recess, including a one year mortgage relief extension, but leadership in the House of Representatives has not figured out how it wants to handle these extenders. With the looming “fiscal cliff,” tax cuts are an increasingly tough sell. This particular extension does have bipartisan support, but that doesn’t always mean passage in Congress, especially around a presidential election.
With great uncertainty as to the fate of the tax relief, some say Columbia SC short sales could get a boost this fall. Borrowers and banks alike may rush to get in before the expiration, which could help boost overall home sales numbers. Stay tuned here, we’ll keep you updated on what happens with Congress and the House on this matter that could greatly affect Columbia SC short sales.
Columbia SC short sales are not as easy (or short) as most people might think. Even with reports that some lenders are trying to speed up the process, short sales can be very complex and only attempted by well-prepared buyers and sellers.
Columbia SC Short Sales – What Can Go Wrong?
Columbia SC short sales can go amuck any number of ways, from lenders backing out of the deal, to buyers who just don’t have the patience to endure the months of waiting that it can sometimes take.
The National Association of Exclusive Buyer Agents (NAEBA) released a report a short time ago outlining a list of 51 things buyers need to watch out for with short sales.
The report from NAEBA’s member survey suggests that only about 25 percent of all short-sale purchase contracts actually make it to closing, and only about half of all homes that are offered as short sales end up being sold that way, though the percentages may vary by market.
The NAEBA report is a litany of advice to the wary about insincere and ill-prepared short-sellers; neglected houses that may fall into disrepair in the months it could take to complete a short sale; lenders who force buyers to jump through multiple paperwork hoops, only to change their minds about the whole deal; closing costs that may be difficult to calculate until just days before the closing.
When considering whether to even get involved in Columbia SC short sales or not, consider the real possibility that some sellers may be listing their homes only as a tactic to delay a foreclosure and aren’t serious about following through. Or some sellers may lose motivation and refuse to complete the sale, perceiving there’s little benefit to them, since they won’t receive any funds from the sale and their credit already is damaged.
If you’d like a copy of the 9 page report, you can grab it here.
After you read through the 51 things buyers need to be aware of, you may just decide that dealing with Columbia SC short sales are not the way to go. But if you think you want to dive into the Columbia SC short sales maze, then make sure you don’t try to go it alone.
Contact us for more information about short sales, and some of the possible pitfalls that may await you.
If you are in the unfortunate financial position where you are losing your Columbia SC home due to foreclosure or short sale, your credit score is probably going to take a pretty hard hit.
In “normal times,” this could make it really tough to rent your next place of residence. Luckily, these are not “normal times” and most landlords are understanding of renters’ financial distress.
Losing Your Columbia SC Home, Better Days are Within Reach
Whether you believe it right now or not after losing your Columbia SC home, better days are within reach. To prepare for those better days take steps now to minimize the damage to your credit, your rental prospects and your future.
Just because you are defaulting on your mortgage, don’t default on other bills. You still need to pay your cell phone, cable TV, car loan, etc. while you are in the process of working out the details of losing your Columbia SC home.
Each additional account you default upon will further hurt your credit score, so keep up the payments if you can.
Losing Your Columbia SC Home? Consider a Short Sale
Rather than just losing your Columbia SC home to foreclosure, consider a short sale, which will do less damage to your credit score. A short sale will allow you to relinquish your debt in writing as well as get rid of uncertainty and stress. Negotiating a short sale should give you much better chances as opposed to just letting it go to foreclosure.
Banks are also very open to short sales these days and working with the bank should bring the best outcome to everyone. Your new landlord will also highly value the fact that you tried to mitigate damages by doing a short sale and taking care of your property during the process.
Never Get an Eviction
Lastly, don’t ever get an eviction on your record. If you are losing your Columbia SC home to foreclosure, work with the lender for an orderly move out. It might be nearly impossible to explain to a potential new landlord why an eviction should be overlooked by them.
When looking for a new place to rent, explain your situation and how you only defaulted on your house but not any other responsibilities. Tell them how you handled it maturely and left the house in good condition. Provide the landlord clear evidence that you will take care of their property as well. Doing these things will give you the best chance of being approved for the rental.
Renting after losing your Columbia SC home is much easier these days than in the past. Being professional and responsible, in all aspects of what undoubtedly will be a painful and uncomfortable process, should allow you to find a new place to rent and hopefully start to rebuild your creditworthiness.
A question being asked frequently in the Columbia SC real estate market is, “What is a short sale?” Short sales used to be an infrequent type of real estate transaction, but with current economic conditions, more and more homeowners are opting for this type of sale. A short sale occurs when a homeowner sells their home for less than what is owed to the mortgage holder. There are pro’s and con’s for both the homeowner and the bank in a short sale.
Bank
There are several reasons why a mortgage holder, or bank, would agree to accept less than what is owed. A bank may benefit from a short sale for one or more of the following reasons:
- More cost effective for the bank to accept less because it would cost more to foreclose
- Banks do not want to own property
- Banks are in the business of making money
In a short sale transaction, the bank or banks involved must approve any offer that is received by the homeowner. The primary bank, the one that holds the first mortgage, will review the offer received to determine whether enough money will be made in order to make it worth agreeing to the short sale versus moving forward with foreclosure procedures. This may take some time as each bank has a lot of “red tape” the offer must go through.
Columbia SC Homeowner
There are reasons a homeowner may opt for a short sale on their home. A homeowner may benefit from a short sale for one or more of the following reasons:
- Credit score suffers less from a short sale than a foreclosure
- They remain in the home until an offer comes in that the bank accepts
- Payments may be suspended depending on the bank’s policy
To initiate a short sale, the homeowner must first contact the bank to discuss the option and learn the process the bank requires. General requirements are to provide a hardship letter outlining why they homeowner can no longer keep up with monthly mortgage payments, as well as providing earnings documentation. This should be done immediately, before the bank begins foreclosure proceedings if there have already been late payments. The bank will inform the homeowner whether or not they “may” accept a short sale, which will be dependent on any offers that are received.
The Downside
There are a few downsides to short sales. For the bank, they forgive a portion of the mortgage in exchange for receiving some of the payment in full. For the homeowner, it means possible credit history hits, as well as being a very lengthy, stressful process.
In the end, a short sale can be a beneficial alternative for distressed homeowners and banks alike. It provides the homeowner with a way to get out from under a mortgage they can no longer support, and it provides the bank with an option to costly foreclosure. It is a good idea for homeowners to consult a real estate professional as well as seek advice from a tax specialist to learn if there are tax consequences to a short sale.