SACRAMENTO, Calif.--(BUSINESS WIRE)--With foreclosures dominating the news these days, plenty of people tout short sales as THE solution for homeowners in financial straits and their lenders. “Words of warning, however: Not all short sales and those who tout them are legitimate, and even if they are, a short sale can be a long, tedious, and not always successful process,” says Alexis McGee, foreclosure information expert, educator, and president of California-based information specialists, ForeclosureS.com (www.foreclosures.com). In a short sale, the defaulted owner sells the home to a third part for less than the amount owed on the mortgage and the lender forgives the difference. The lender and defaulted property owner avoid foreclosure and the third party gets a property at what seems to be a discount. In the month of March approximately 18% of homes sales were “upside down” — the selling price less than the loan amount, according to an informal survey by the National Association of Realtors. Among the issues with short sales: * Banks take many weeks to respond to an offer. * Mortgage servicers, which must approve a short sale, balk at the purchase price. (Mortgages often are packaged and sold to investors who may have to approve the short sale, too.) * Homeowners can have more than one loan on the property, complicating and further slowing the process. * Volumes of documentation are required. * Homeowners must show real hardship as reason for the debt forgiveness. “With the latter, a homeowner simply wanting to skip out on repaying the full amount owed isn’t good enough,” says McGee. “Another complication,” says McGee, “Mortgage servicers like to verify a proposed short sale is an ‘arm's length’ transaction between two parties rather than a sale to a relative or someone else on sweet terms.” Adding to the hassles, short sale success rates are low. “In the Sacramento area, for example, I have found that only about 10% of short sales actually close, compared with 90% for a traditional purchase,” says McGee, also author of The ForeclosureS.com Guide to Advanced Investing Techniques You Won't Learn Anywhere Else (Wiley) and The ForeclosureS.com Guide to Investing in Pre-foreclosures Without Selling Your Soul (Wiley).
