Home value is a relative thing. The definition is, “What a buyer is willing to pay.” That isn’t really true because the lenders have so much to say about that, …for good reason. They don’t want to give someone a load of money on a house that isn’t worth what they lent. If the buyer defaults, they are stuck holding a house they lose money on. They aren’t going to be in business long if they do that too often.
Many people need to sell their homes but the current market is making it impossible to get a good price. That forces them to offer their homes at less than they owe. That is called a “Short Sale”. Agents advertise a home at a great price, (too often, too good to be true), wait for an offer, then submit it to the lender/mortgage holder for approval. It often takes a long time and a lot of paperwork if the agent knows what he/she is doing to get an approval on a short sale. Choose your agent wisely. Too many short sales fail for no other reason than the agent didn’t know what they were doing.
Too often the advertised price is so ridiculous, a lot of buyers get sucked into the idea of getting something for nothing and get caught in the black hole of short sales blues.
Hopefully, the offer is finally reviewed, in the lender’s due time, and if the agent has done his/her job well enough,, the lender will most likely come back with a more realistic price or offer they ARE willing in accept, and the buyer has the option of accepting it or moving on to the next “too good to be true” listed home for sale.
If the original buyer moves on , which is most likely the case, the agent then can list the home at the price the lender has said they will accept and hope a buyer will be willing to pay that price. If the price has already been approved, it can make the short sale process go a lot smoother at that point.
Up till now, the biggest problem with short sales is the seller loses twice. Not only do they lose their home at less than they owe, but the lender will file a 1099 on the loss. The difference in the price they lent the owner and lower sales price to the new buyer is a loss for them so they claim it as a loss on their taxes. The IRS then comes knocking on the seller’s door and wants them to pay on that “gain”. It is like getting slapped in the face twice. It is sad.
Now, because of these new addendum/disclosures, I have come to understand the lender can come back to the seller and sue them for the difference. They did sign contract, after all. I am not sure how many years (it is significant), they have to come after the seller for breaching the original contract but it is surprising they can still do this after all the seller has to go through to complete a short sale.
So, they lose their home, at a price less than they paid. They are responsible for the taxes on that difference and now, I’ve learned, they are liable to pay that difference back to the lender anyway. 3 slaps in the face so far, and counting. (Not counting the ding in your credit score for year to come)
It seems short sales are not a very good thing for a seller. I highly recommend you look into other options. The consequences seem to catch up to you and are much too harsh.
The Federal Trade Commission has issued a rule that requires real estate agents to provide certain disclosures when representing sellers in a short sale transaction.