What is a short sale and does the bank own the house?
Simply put, a short sale occurs when a home that is sold is worth less than the mortgage amount and the homeowner cannot make up the difference. For example, you sell a home for $75,000 but the mortgage is $100,000; you’re short $25,000. The bank enables the homeowner to sell the house by forgiving the $25,000 difference. So while the bank doesn’t own the house, the owner can’t sell it without the bank’s cooperation. Of course, in an actual short sale, the bank would be forgiving the mortgage amount, any other liens and the closing costs.
If you are interested in pursuing a short sale in Bergen County, please contact an attorney who specializes in real estate before you do anything. It is always best if you begin by being fully informed.
To get the bank to allow a short sale, a homeowner completes a “workout package” for the bank’s approval including a ”hardship letter” in which the circumstances of the homeowner’s difficulties must be explained along with supporting documentation (pay stubs, account statements, etc).
Why would a bank do this? Because the other alternative is a foreclosure which will cost the bank much more in time and money.
Why would a homeowner do this? A short sale erases the debt – most of the time the bank forgives everything; infrequently it may insist on a promissory note for part of the loss but that’s still much better than a foreclosure. In a foreclosure, the debt is still owed so creditors can take your vehicles, garnish your wages, clean out your checking account etc. This can last for years until the debt is paid off. A foreclosure ruins your credit for about 10 years – this is a disaster like the Titanic. You can recover your credit in a few years with a short sale plus the IRS does not consider the forgiven debt as income.
In Bergen County we have 3,703 single family homes for sale according to the New Jersey MLS today; 346 are short sales. That’s 9.3% of all homes for sale. Real estate can be negatively impacted by foreclosures; it’s not nice to drive down your street and see a boarded up house with a “Sheriff’s Sale” sign on it so there are many reasons why a short sale is a better idea; it helps the bank, the homeowner and real estate in Bergen County.
