Over the last year, housing prices have taken quite a ride.

By the end of 2022, prices were down 17%. They’ve rebounded about 7% this year so far, but that means for anyone who bought a home in the spring of 2022 and is now experiencing a job loss, a divorce or any other kind of dramatic life event, they could be underwater on the home they just bought.

For example, a home purchased for $440,000, the average price in April 2022, would likely sell for around $390,000 now.

Most homes are purchased with less than a 20 percent down payment, meaning that the proceeds on such a home right now may not cover the loan amount. In this situation, a seller must ask the lender for a short sale.

In a short sale, the seller needs the cooperation of the lender to first agree to the process, and then to accept less than the original loan amount. While very few short sales have taken place in Maricopa over the last few months, it’s still a possibility for some homeowners while the market recovers.

The seller must make a case as to why a short sale is needed. Lenders may be sympathetic to job losses or an unexpected illness and other events, but not if the seller just wants to buy something else and get out of the current loan.

Most of the time, lenders will require a homeowner to demonstrate that they have a financial hardship and may not agree to consider a short sale until at least one payment has been missed. This will negatively impact the owner’s credit — both their score, as well as their ability to get a loan in the future.

Generally speaking, a short sale will do less damage to a person’s credit than a foreclosure. According to the Fair Isaac Corporation (FICO) if you have a credit score of 680, it will take three years to recover from a short sale, whereas a foreclosure could take 5-7 years.

Additionally, a homeowner who goes through the short sale process will be eligible for a new mortgage in less time than if they allow the home to be foreclosed.

If you think you may need to do a short sale, consult with both a Realtor and legal professional to see what options are best for your situation, and whether you may be responsible for repaying any deficiency that the lender writes off.

Dayv Morgan is a Maricopa Realtor and owner of HomeSmart Success.


This sponsored content was first published in the August edition of InMaricopa Magazine.