How Do I know Anything about Short Sales?
My husband and I lived in Las Vegas during the housing crash in the early 2000s. We were in our mid-twenties and we had just purchased our first home together. We purchased our house in Henderson, Nevada, just outside of Las Vegas in 2008. It was a 4 bedroom, 4 bath house with a pool, hot tub, and covered patio. Looking back, the house was way too big for us and our two dogs. We bought that house thinking that buying a big house in the suburbs was the way to go since that’s what everyone else did.
We bought our house in Henderson for $300,000 in 2008. Then the recession hit and the housing market crashed. By 2011 our Henderson home was only valued at $180,000. That same year, in 2011, my husband accepted a new job in Colorado, which forced us to move from Vegas. We couldn’t sell our house for anywhere near what we bought it at in 2008. And we didn’t have $120,000 to cover the difference between the values.
What is a Short Sale?
Per Wikipedia, a short sale is, ” a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished.”
In simple terms, it means that the seller agrees to sell the house for lower than what they owe on the property. The buyer agrees to buy the house knowing there is outstanding debt. This outstanding debt can be an issue if the bank doesn’t agree to short sale the property since the seller and buyer would have to split the outstanding debt. In our case, the bank approved us to the do the short sale.
How did we get approved for a Short Sale?
We did a lot of reading online (tons!) and went with a real estate agent who was well-versed in short sales, which was not hard to find in Vegas. Our real estate agent helped walk us through getting all needed paperwork over to our bank. In our case, we had to write a letter explaining why we needed to sell our house which I wrote quickly one afternoon. It was pretty easy since we honestly couldn’t afford both our property in Henderson and a new property in Denver.
Side note: The bank still thought we made too much money and could afford both properties. They told us we needed to show more expenses so we ended up buying a new car to show debt. Ridiculous, but it got us approved for the short sales. Also, he bank was slow (so slow) in getting anything done so closing on our short sale took an hour longer than expected.
Don’t Short Sales only happen to Irresponsible People?
Nope. It happens to every day people who don’t know a lot about the housing market. We were very uneducated about how to spot a housing bubble back in 2008. We just assumed the high housing prices would continue to climb forever. Looking back, there were a lot of clues that the bottom would drop out in Vegas. The housing prices shot up quickly over night, there was way more supply than demand, and prices were over-valued compared to similar markets. This was evident in other areas as well but we had to learn the hard way, like a lot of other people.
How long does a short sale stay on your credit report?
Four years is how long a short sale affects your credit record. For us, our short sale closed in January 2012. It cleared off our credit in January 2016. Our credit score also dropped about 100 points after our short sale closed. Luckily, we had pretty good credit prior to the short sale so we could stand the drop. Even after the short sales was listed on our credit, we had no trouble buying our car, getting approved for credit cards, or renting an apartment.
Did we have to wait four years to buy again?
I’m happy to say we didn’t have to wait four years to buy again. I won’t say it was easy to get a loan but we were able to do it. We bought our cabin in 2013 and also our four-plex house in 2014. Each time we went to buy a home, we had to disclose our short sale to the bank giving us the loan. Some banks, especially national banks like Wells Fargo, wouldn’t even work with us once they heard about the short sale. National banks have to adhere to certain rules about writing loans.
Certain banks like credit unions can write loans in-house. Because these credit unions don’t have to adhere to the same rules as national banks, they can choose which loans to write. Credit unions were one of the few banks who would work with us. We bought our cabin by putting 20% down (the standard amount) with an in-house loan from a credit union. To buy our four-plex, we also used some interesting financing (putting only 10% down) for our four-plex. Watch for future articles on how we did that.
Do we regret doing the Short Sale?
No. It saved us from years of trying to pay for a house where we no longer lived and honestly couldn’t afford. The house we short-saled in Vegas still isn’t valued at the price we bought it for in 2008 so we would have been paying money on a loss for years by now. From this experience, we learned how to spot a housing bubble and how to avoid it in the future. We learned a great deal from our experience and we will not repeat it again in our adult lives.