Short sell is the latest buzzword for selling a home for less than what is owed the lender. “It’s an option for people who are trying to avoid foreclosure but can’t stay in a home,” said Bob Campbell, executive director of the Rockford Area Affordable Housing Coalition. “If they don’t have any equity built up in the house and they’ve suffered a job loss, divorce ... it gives them an option to move on without a foreclosure on their credit report.”
Bob Campbell, executive director of the Rockford Area Housing Coalition, said the number of home foreclosures has been on the rise each year for the past five years.
“But to jump from 170 foreclosures to 310 (82 percent) in one year is a pretty big increase,” he said of the number of foreclosures over the past two years.
The spike is yet another sign of a struggling housing market gripping the Rock River Valley.
Many homeowners are attempting to make “short sells,” rather than enter into foreclosure, a procedure by which the lender either takes title to or forces the sale of the borrower’s property to satisfy a debt, Campbell said.
A short sell is made when the homeowner owes the lender more than the home is worth, and the lender has agreed to accept a discounted payoff to release the homeowner from the mortgage. The difference between what is left on the mortgage and what the house actually sold for is typically paid by the homeowner’s private mortgage insurance.
“It’s a hit on a person’s credit, but it’s better than foreclosure,” he said.
Campbell led a workshop Tuesday informing area Realtors about the short-sell process.
Whitehead Realtor Maria Haun, who has sold two houses as short sells and has two more listed as such, attended.
“It helps the (seller) get out from under a mortgage rather than go to foreclosure, but it does take the approval of the lender,” she said. “It’s not a quick process.”
Gambino Realtor Jim Barbagallo said a short sell can be good for the seller and the buyer.
He recently helped a young couple sell a year-old house valued at $131,000 for $122,900, a price agreed upon by the lender.
“It took us a month to get three offers all at $122,900,” he said.
The lender held out for three months before agreeing to sell the house at the reduced price. Despite the wait, Barbagallo said, it was better than the alternative.
“If he had walked away, it would have sat vacant for 12 months, and it would have deteriorated. And it would have sold at $75,000 to $80,000 on a good day.”
According to the Rockford Area Association of Realtors, 150 homes in Winnebago, Boone and Ogle counties are listed as short sells. The average list price is $122,968, the cheapest being $23,000 and the most expensive, $524,000.
Over the past 400 days, 76 deals have been short sells.
While a short sell is an alternative to foreclosure, Barbagallo said sellers are advised to seek legal counsel before going that route.
Chris Green can be reached at email@example.com or (815) 987-1241.