Last night, we tuned into Oregon Public Broadcasting (OPB) and caught Suze Orman’s pledge drive show. A man in the audience asked for her input on whether he should short sale his home. He said he was underwater by roughly $50,000 and was not planning on living there longer than a few years. It was not his forever home.
Suze questioned him on whether he could afford to keep the house to which he replied, “Yes”.
Be aware that in a short sale the lender is going to demand that the seller proves financial difficulty. They want copies of the most current two months of pay stubs and bank statements for all borrowers on the note. If the seller can afford the payments more than likely the lender will not accept a short sale. Lenders also will not even consider a short sale if a the home owner is making the payments. Unfortunately a person has to be in default before initiating a short sale.
Suze then discussed “judicial foreclosure” states versus “non-judicial foreclosure” states. She implied that if the home was in a non-judicial foreclosure state a short sale would not be putting the seller at future risk.
I have done many short sales in Oregon which is a non-judicial foreclosure state. In non-judicial foreclosure states, once a home is foreclosed, the lender has no further legal recourse to try to get the owner to pay anything toward closing the delta between the amount borrowed and the sale price.
A short sale is considered a pre-foreclosure activity and is not bound by the same rules as a foreclosure. In a short sale the lender agrees to accept less than the amount the borrower owes. An acceptance letter is issued by the lender stating the conditions of the sale. Some lenders do not include a waiver of future deficiency as a condition of sale. This means they are reserving the right to come back to the borrower in the future for the deficiency. Some lenders want the seller to sign a note for a monetary amount as a condition of sale. In one case, the lender wanted a seller to sign a note for $40,000! Another lender asked a seller to either contribute a cash amount of $3,000 or sign a note for $6,000. In other cases, buyers are asked to contribute money to the second lien holder. These types of demands are common enough that in Central Oregon we use a Short Sale Addendum that states that buyer or seller may reject any terms imposed by the lender and terminate the sale.
For real estate advice it is best to contact a local REALTOR to ensure you are getting the most current and accurate information.