You can count on a short sale being around 60 days longer than a traditional sale, depending upon the bank and your particular situation. sometimes much more, sometimes much less! This is going to get shorter. By April 10, 2010 the HAFA program will go in effect where banks will have ten days to answer short sale offers.
In my short sale division, our fastest short sale approval letter came in three days after we submitted the package to the bank; that was a Wells Fargo-Wachovia loan that was originated as a World Savings Option Arm. Jennifer, who works for Wachovia, is our local World Saving-Wachovia-Wells Fargo short sale liason and she is spectacular to work with. We have closed several great files with her and right now have five more in Active and Pending status with her.
On the other end of the spectrum; my longest short sale approval took 7 months; that was a Countrywide- BofA with a refinanced second. This type of transactions is where a short sale specialist earn their keep. We just never quit. This file took so long to get approved, we actually had five separate buyers in contract at different times, as the market was dropping fast and buyers were walking, pulling their offers. We would have to basically start all over each time; the purchase price we were negotiating kept getting lower!
But we pulled it off, our persiverence prevailed and we had a successful close. This short sale transaction was one where the owners net worth was very substantial and we had to negotiate a note to get the second lien holder to release the lien. The homeowner was happy; they got to move on; Countrywide was happy, they got the note to start performing again (even though we got the $175,000 second negotiated down to $50,000 payable over ten years with ZERO INTEREST)! That was a long one but ended in a Win-Win for everyone involved.
Even in the longest case, the credit “hit” was much, much more manageable than a Foreclosure. A short sale means you may be up to 3, 5, 8 months behind. A foreclosure, with the bank imposed “moratorium” on trustee sales could actually be years of negative monthly reporting! I have several clients and know of several more homeowners who have made no payments for over two years and the banks has not even filed anything to get the 102 day process started!
You see, both are going to be detrimental to your credit; in either case, every month without a payment is another 8-15 points off your credit score.
So 5, 7, 8 month worse case for a short sale from the time you decide to sell until the escrow closes, or a 20+ or more month average for a foreclosure. So for a foreclosure you can multiply that by8-15 point drop by 15, or 20, or 28 months! Can you say “Neuclear Damage” to your credit? That’s 250 to 350 points! That means a 700 credit score could easily drop to 400 or 450. Plus your still going to have the foreclosure as a punctuation mark at the end of it! Conventional financing is not an option for seven years if you have a foreclosure on your record.
Why are they postponing trustee sales?
The stability and even little “bounce” we are seeing in the housing market in some areas has nothing to do with economics or strength of our real estate market, but has everything to do with supply and demand of well priced homes. At the Trustee Sales at our county courthouses in Sacramento, El Dorado and Placer Counties (just like every other courthouse trustee sale in the nation right now), banks are postponing 70-95% of the sales every single day- so if 733 homes are on the schedule to be sold today, 108 might sell. Short sales are being pushed by the servicers now as a way for them to stop taking homes back in foreclosure.
Blomquist: “Unfortunately, a lot of it is more of a temporary delay on foreclosure activity as opposed to a long-term turnaround in the trend. So we expect that roller coaster ride to continue in 2010 as we have even more programs designed to prevent foreclosure in the mix.”
There are several reasons why they are postponing; some have to do with “imperfect foreclosures” where the banks who have internal auditors have found perhaps missing documents or irregularities with timelines in the foreclosure file, so the servicers are re-doing some of the technical foreclosure process.
It also has to do with the banks who received TARP money are now required by law now to make contact with the homeowners and specifically offer the HAMP program to them, they have to be able to document that they at least tried to make contact and if they can get the homeowner to cooperate, they must put them in the 90-day trial loan modification.
Never mind that 92% of loan mods fail and the home actually does get sold at the trustee sale. (hence the 5-30% of trustee sales actually happening daily).
Long story short: if you are struggling with payments or just struggling with the fact your home is 30, 40, 50% or more underwater and you may have to stay there until way after retirement to ever be able to sell without bringing money to the table; Consider a Short Sale.
Never a good thing for your credit, but if you think about it, this market is definitely not going to go anywhere but down over the next several years in most areas and price ranges, so by the time you repair the 100-150 point hit a short sale will cause to your credit (usually 20-30 months) you will still be able to buy while prices are at historical lows. You could then spend the next ten to twenty years building equity rather than just digging out of a hole.
Ten to twenty years adding to your nest egg instead of crawling back up to a zero equity position.
Unless you love your house and you are willing to pay your monthly payment just to live there, a short sale may be your best option.