Tag Archives: short sale

There are a number of things to consider when purchasing a home. Usually homeowners have to take out a large mortgage and are required to make monthly payments back to the lender. If the homeowner cannot pay those payments, then the home can literally be seized and taken away from the homeowner.

In 2007 a market crash happened in real estate. This caused a lot of defaulted payments on mortgages. This, in turn, caused foreclosures on homes.

A main reason for so many defaulted payments was because when borrowers were having a hard time making payments they had very slim changes of being able to repay it. The only option was refinancing the home with a lower interest rate, which many mortgage lenders were not willing to do because of so many foreclosed homes.

Another reason was that before the 2007 crash the real estate market was in an up market. When a homeowner ran in to trouble with paying the mortgage bill, the next step is to sell the home and downgrade. Unfortunately, the homeowners could not make any form of profit when selling their home because of the market crash. Since they were already struggling in the first place, this made it an even more impossible scenario.

As home prices decreased, interest rates increased. It increased so much that foreclosures continued to happen at a high pace. Homeowners were kicked out of their home, and then the institution that lent the money in the mortgage would auction the home themselves. The home would still go at the lower price, however. The large amount of foreclosures caused the government to step in.

Short sales, then, came in to play. A short sale occurs when the homeowner sells the home for a much lower price than what they originally bought the home for, with the lender’s acceptance. So instead of being foreclosed on, the lenders accept the price to avoid expensive foreclosures and long, drawn-out repayment options.

Short sales are most often considered the better option for a homeowner. While there are still negative outcomes of short sales, the negative aspects are generally considered a much better option than a foreclosure.

For example, after a foreclosure if a homeowner wants to get a new mortgage loan they need to wait nearly five years typically before they can qualify. Short sales, however, usually take around two years. Also, because of the Making Home Affordable (MHA) Program, short sale owners get an allowance of $1,500 for relocation expenses, and are usually exempted from any taxes on the forgiven amount of the real estate sale.

Todd McCauley is an owner/agent of Eagle Rock Properties, a Boise real estate brokerage. He manages a program called The HELP Program that designed to help struggling buyers qualify for a home. He helps buyers and sellers with Boise homes.

It is easy to feel discouraged when you deal with short sales. I’ve been there before myself. There are a few phases that come along with the “short sale blues”.

Phase 1. I can still make this work. Typically, things don’t all come crashing down at once. Usually the troubles start with a layoff, an adjustable rate interest hike, or some other “manageable” financial crisis. As things start to slip, you’ll find yourself saying, “This is going to be tough BUT, I can still make this work. We’ll just tighten our belts and dip into savings-maybe even borrow a bit from family.” If you pull out at this phase-congratulations! You dodged a real bullet.

Phase 2. Uh-Oh! $%^!@#* If things don’t work out quickly-either through picking up a great new job, getting a family member gift or some other miracle-the next phase is the !@#$% phase. The good news is this is the worst part. Once you make it past this, things only get better. You-along with thousands of others before you-will find yourself saying, “But I’ve never missed a payment in my life. I’ve got an 800 credit score.” You spend a lot of time imagining the police hauling you off to jail and debt collectors kidnapping your pets for ransom. All hyperbole aside, this phase of short sale blues is likely to be one of the worst time of your life. It true feels like life is over.

Phase 3: Decisions – This is where you decide what to do when you can’t afford the home you are living in. You discuss what your options are. This is the time you decide that you need to put your home up for a short sale.

Phase 4: The Waiting Period – Short sales make up around 20% of the Boise real estate sales. Home sales are up by 37% in Boise from the February to March. There are buyers out there who want your home, and you might not have a hard time finding someone interested in your home. The problem lies with often being forced to wait on the bank for them to approve the short sale. Approval from banks can be a long and tiring experience for homeowners. Many times you go through two or three interested buyers before the bank finally approves the sale. This can be disheartening when you are in a dire situation and don’t have a lot of room for a sale to take a long amount of time.

Phase 5: Close the Deal – Finally, the day has arrived where your short sale finally closes. This is not necessarily a happy occasion, but it is one that offers relief from the constant headache selling your home offers. This is a good time to let go of the hardships and move on with life. Be sure to speak with your accountant about whether or not you will receive a 1099 tax form because of the income you got from your home sale.

Short sale blues are hard to navigate through. However, there is light at the end of the tunnel. Talk to others that are in similar circumstances to you. Find others that have gone through short sales and lived through it. They can be an excellent source of advice for your future years while you wait for the consequences of a short sale to lessen.

Todd McCauley is an owner/agent of Eagle Rock Properties, a Boise real estate brokerage. He helps struggling buyers and sellers with their Boise homes.