Knoxville Tennessee Real Estate Blog

You hear the words “short sale” a lot these days in conjunction with Realtors and real estate sales but just exactly what is a “short sale”.

Very simply put, a short sale is a sale of real estate in which the mortgage lender (or sometimes lenders) agree to take less than the mortgage balance in order to get that home sold.

If you’re like most people, your first question would be: “Why would a lender that has a security interest (mortgage) in a house even think about taking less than is owed them?”

And there are several answers but the most realistic one is money.

If a lender forecloses on a home in today’s market they can expect to lose about 55% of their investment after all the expenses required to get legal ownership of a house from the former owner(s).

If they’re able to work with the homeowner and do a short sale for a reduced price and payoff, their losses only amount to around 35% of their investment. So you do the math; would you rather lost 55% of a $250,000 house or $137,500 in real dollars or cooperate with a new buyer and the old owners, 35% less and “only” lost $87,500? The difference is $50,000 per transaction so it’s pretty clear why lenders would even consider a short sale over foreclosure.

One very real problem we have to deal with is that the sheer magnitude and volume of homes involved in the housing crisis has overwhelmed lenders who are suddenly faced with massive delinquencies, mortgage holders losing their jobs, declining values, and tightened credit and lending guidelines from the federal government.

Some call this market the “New Wild West” and it is definitely a new frontier. I have been a real estate broker for over 30 years now and I’ve never seen a market as volatile and confused as the one we’re in right now.

According to a member survey by the National Association of Realtors (NAR), 54% of all Realtors have been involved in a short sale in the past 12 months. 94% of that number said a “lack of response from lenders” was the chief obstacle that hindered or prevented them from closing the sale at any price. In those situations everyone loses.

Realistically doing a short sale in today’s real estate market can take from 2 to 4 months under ideal conditions even if you’re working with a seasoned real estate professional with short sale experience.

If you’ve fallen behind on your mortgage payments you also have some alternatives to jumping into a sale of any sort.

For step 1 I recommend you contact your lender and see if you might qualify for a loan modification program at a lower interest rate or payment. I know of a recent case where a homeowner was able to get her mortgage interest rate reduced to 2% for the next 5 years and then a fixed rate of 4.75% for the remainder of the loan. This loan modification reduced her house payment by almost half!

If you don’t qualify for a loan modification for whatever reason, a short sale could be your best alternative to foreclosure.

If you would like some information or think your home might qualify for a short sale, call me and we can find out together. All calls are confidential and there is no costs or obligation to you to see what your options might be. I have completed and closed transactions where a short sale is involved and have completed training and courses as a Certified Short Sale Professional (CSP).

eMail Jim today or call (865) 693-3232 and ask for Jim Lee.

www.KnoxvilleHomeCenter.com