If you’ve watched (or listened to or read) the news lately, you’ve probably been told that short sales are surging in popularity.
So if you’re currently in an underwater position on your mortgage, you may be thinking about listing your property and hightailing it out of there.
But I wanted to share a few words of caution before you think you’re going to get away unscathed.
Credit Ding? You Bet!
First off, a short sale will damage your credit score pretty severely. We aren’t talking foreclosure status, necessarily, but it should still lower your credit score by a sizable margin.
Fico says they treat short sales and foreclosures the same, but there is some distinction they don’t really talk about.
It really depends on how many late mortgage payments you have leading up to the short sale.
If you can pull off a short sale without missing a payment (unlikely), your credit score may not be harmed as much.
But that’s a tall order these days, as most lenders want to see that you’re truly distressed before offering up any relief.
They’re basically calling your bluff, waiting for you to fall behind on payments before they take action.
Okay, so we know you’re not getting away scot-free. But it doesn’t stop there.
Oh, before that thought, understand that you’ll probably have to wait a few years before taking out a subsequent mortgage. Makes sense, right?
Keep an Eye on Your Real Estate Agent
Here’s another thing to be wary of. The minute you tell your real estate agent that you’re thinking of short selling your home, they may get some clever ideas.
By clever ideas, I mean trying to sell the home to an associate, friend, or family member for a below-market value while they double-dip on commission.
It works like this. They throw up the weakest listing possible on the MLS, with maybe one or two really bad photos and a one-line description.
Something like, “Home for sale, needs work,” with a picture of a folding chair up against a wall.
Think about those times when you’re not actually trying to sell something, and you’ll have a good idea as to what I’m getting at.
Then they slap a super low price on the house, which while cheap, may not look it thanks to the terrible associated listing.
[Setting the right listing price.]
No Offers Please!
Their goal is to get NO legitimate offers. If they do get some, ideally they’ll be way below the already low asking price.
From there, they’ll come back and tell you that their secretary’s brother is interested in buying the property, and is a “real nice guy.”
If you take the bait, they’ll try to short sell the home to that interested party, and essentially make out like bandits.
It’s called “double-ending the deal,” and means they earn 6% of the purchase price as opposed to 3%.
And you’ll stand there scratching your head, wondering why your awesome house went for so little.
That’s if it actually gets sold at that price. If the agent lists it for a ridiculously low price, the lender may balk.
As a result, you may miss even more mortgage payments and sail toward foreclosure.
So make sure you work with an agent who has your best interests in mind, not their own. Good luck.
Read more: The Open House scam.