Short Sales Aren’t Really That Scary

I just finished reading an article about short sales over at the USA Today website, and while it raised some good points, it focused far too much on failed short sales and some of the pitfalls of the process. Someone reading this would want to run as fast as they could away from a short sale, which is unfortunate.

This makes short sales sound about as enjoyable as getting a root canal without anesthetic while listening to non-stop news about the debt ceiling debate on the radio.

Too bad most of this article misses the real point. Yes, there are bad short sale experiences. Yes, a majority of short sales don’t work out, for a variety of reasons. But suggesting that foreclosure is a better option than a short sale is way off the mark. Without exploring why the short sale process is a difficult one, and just superficially looking at some anecdotal failures, this does a disservice to financially troubled homeowners.

This article stresses the point that mortgage insurance, particularly on a second mortgage, is a complicating factor in concluding a successful short sale. While mortgage insurance and the way lenders react to it can complicate things, I can tell you from personal experience why most sales fail. They are attempted by real estate agents who don’t have the expertise and skills and experience to make them work.

Where failures happen is when the short sale pricing is unrealistic, or when the agent is overwhelmed by the documentation requirements and the various deadlines, and particularly the negotiation with the lender’s short sales department. Or because the agent slips up on the many follow-up requirements, among the lender, the buyer, and the seller.

I’m not trying to pick on real estate agents. But it’s like baseball. You may be a great outfielder or a Golden Glove shortstop, but that wouldn’t mean you could jump in as the starting pitcher. Short sales require specific expertise and skills, although thankfully one of them isn’t a 95 mph fastball.

Homeowners in distress need to be wary. They need to evaluate all of their options and make the choice that fits them best, whether it is loan modification, a short sale, or begging the in-laws to help them make a few house payments. But it doesn’t help if they are scared into passing up real chance a short sale offers to get out from under a bad situation with minimal financial and credit record damage.

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