Should I “Short Sell” My West Chester or Liberty Township Home?

A couple recently came to me looking for advice. A few years ago, they purchased a condo in West Chester. They are a family of four and decided it was best to save money, so last year, they moved back in with their parents and decided to rent their condo in the meantime.

Unfortunately, the rent they get on their condo doesn’t cover the mortgage, taxes, insurance and monthly condo fee. For the past year, they’ve been paying about $400 out of pocket each month to fill the gap.

Three months ago, after shopping for West Chester and Liberty Township homes for sale, they purchased their “forever” home. Now they’re paying a mortgage and $400 to cover the cost of the condo.

On a few occasions over the past year, the couple has tried to sell their West Chester condo. They listed the home for $180,000 but received no offers. Eventually, they dropped the price enough to get an offer of $157,000 that came in just last week. Not bad, but not enough to pay off their existing mortgage ($165,000).

Making matters worse, their tenant has recently notified them that he’ll be relocating for work and leaving the apartment as of December 31st.

The offer that came in last week comes with a major caveat: the West Chester homebuyer doesn’t want to close until April 1st. This means that the couple would be responsible for all carrying costs ($1600/month) between now and then, an expense they just can’t float. That’s in addition to the $8,000 they’d need to come up with at closing to pay off their mortgage – and any extra costs associated with the closing and realtor’s fees. It would wipe out the couple’s savings entirely.

Should they try to sell their home as a short sale, instead?

A short sale is when a property is sold at a price lower than the amount the homeowner owes on the mortgage, and the lender agrees to the “short” payoff. For instance, in this situation, a bank might agree to “short sell” the property for the offer price of $157,000 and the sellers would not be obligated to cover the difference owed to the bank. Complicating matters, though, is the short sale process can take months to complete – and even in the best case scenario, the sellers might not be able to close on the buyers timeline (April). The short sale approval process is complicated, expensive and drawn-out.

The benefits of selling through a short sale:

  • Your loan will be considered paid in full.

  • You won’t owe any more money to the bank in the interim or at closing.

  • You’ll avoid foreclosure.

  • A short sale has a smaller impact on your credit (3 years) than a foreclosure (7 years).

In this case, the sellers could stop paying their mortgage now (saving $1400/month) if they decide to sell via short sale. It would also eliminate the $8,000 gap they owe to the bank. However, the couple would still be obligated to pay the condo association fees ($200/month) until closing. If they stopped paying their condo fees, the association would put a lien on the West Chester property and could begin foreclosure proceedings against the sellers’ will.

Another benefit for the couple: damaging their credit score for the next three years isn’t that big of a deal. They’ve already purchased their “forever” home and own their vehicles outright. They don’t anticipate taking out any new loans in the near future, so having a poor credit score isn’t the end of the world for them.

The risks, though, are that the bank doesn’t approve of the short sale – or alternatively, don’t approve of the offer price ($157,000). In that case, the sellers are back at square one. They could decide to move forward with the sale under the existing terms of the offer, not using a short sale, but then they tip their hand to the prospective buyer who will then know that the sellers are underwater and can’t afford to pay the mortgage. Tipping their hand may cause the buyer to go back and modify their offer to a lower price in the hopes that the sellers are so desperate that they’ll accept.

So what should they do?

Here’s my take: I think they should go for the short sale. After trying to sell their home for months with little interest, the fact that they have an offer at all right now is a good thing. In the meantime, they should do everything they can to save money in the event the short sale isn’t approved. That way, if they have to cover the $8,000 difference (plus closing costs) they’ll be in a better position to do so.

Another suggestion I had for them: try doing a short-term rental at their condo. If they were able to provide even basic furniture, they could put their condo on Airbnb and attract visitors to West Chester and Liberty Township for the first few months of the year. They could market to short-term renters, as well, like those who need a place to stay during home renovations.

Do you have questions about your West Chester or Liberty Township home for sale? Shoot me a message! Our agency specializes in working through tricky situations like these.