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The benefits of a short-sale process

Real estate: A short sale does not negatively affect credit like a foreclosure

Posted: January 3, 2011 8:47 p.m.
Updated: January 4, 2011 4:55 a.m.

Tim Blankenship, real estate agent and owner of the Santa Clarita Short Sale Center, stands in a home where the homeowners used a short-sale listing. Using short sales can minimize damage to the owner’s credit. The owners moved out early. The home is still for sale.

 

The process of putting a home on the market for a short sale is not much different than listing a home for a regular sale — with the exception of negotiating an agreement with the lender, according to Tim Blankenship of the Santa Clarita Short Sale Center.

A homeowner lists his or her home for sale with a real estate agent, who places a notice in a multiple listing service.

When a potential buyer surfaces for a short sale, the Short Sale Center can negotiate an agreement with the lender to sell the home for less than is owed on the mortgage.

Once the lender agrees, the home is sold to the buyer.

The buyer pays his or her own real estate agent’s commission fees. The seller does not pay the Short Sale Center any fees as all; commission fees are paid by the bank on behalf of the seller.

Securing approval from a lender does lengthen the process for a buyer waiting to move into a home.

But the advantage of getting a home for actual market price or slightly below is an attractive option for many home shoppers today, who could not previously afford to buy a home.

The start-to-finish process begins at the point at which a home is listed for sale and ends on the date of short sale approval. Once this process is concluded, the regular escrow process begins and can in many cases move quickly.

“The average short-sale period can be a three- to six-month process, but about 90 percent are approved in two to three months,” Blankenship said.

Credit reporting
A short sale does not negatively affect a homeowner’s credit to the same degree a foreclosure does.

A foreclosure stays on a credit report for seven years, and in applying for future credit, loan applications ask the applicant if the person has ever had a foreclosure filed.

In the case of a short sale, homeowners can apply for another mortgage in as little as two years with most lenders, Blankenship said.

It’s important for distressed homeowners to focus on how the short sale will be reported, as opposed to the credit points that will be deducted. A short sale is listed as the debt being “satisfied” on a credit report.

Homeowners should keep legislation in mind when making a decision to opt for a short sale on a home.

The Internal Revenue Service mortgage debt relief act of 2007, which ends in 2012, allows people in certain circumstances not to have to report the amount forgiven on a loan as earned income.

And a new California law that took effect with the new year prevents lenders from sending collection agencies after homeowners who sold their home for less money than they owed to collect the balance of money owed on the first trust deed of their mortgage.

In essence, this law puts short sales on par with foreclosures, in which a homeowner’s obligation, or debt, is wiped clean.

“Short sales are a win-win for everyone,” Blankenship said. “The seller, bank and communities win.”

Local short-sale transactions
Listings from the multiple listing service from Dec. 28, 2009, through Dec. 28, 2010, show that 1,944 local homes were listed under short sale terms, Blankenship said. Of those listings, 914 of the homes terms sold.

“That number represents about 50 percent today.” Blankenship said. “But keep in mind that many of the homes listed are in the process of having the short sale negotiated and aren’t yet showing on the books as sold.”

He also said no one is immune in this recession. His firm has worked with local properties in the $1 million to $1.5 million price range.

“We aren’t immune to the recession, but Santa Clarita will prevail stronger than Los Angeles County,” he said.

The Short Sale Center can be reached at (661) 228-3050, and more information can be found at www.scvshortsalecenter.com.

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