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Home Values |  |
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Home Values | |
Short Sales
What is a short sale?
Simply stated, a “Short Sale” is when the Seller of a property expects to end up owing more to the Lender then he or she will receive from the sale after considering the associated costs of sale such as commissions and escrow fees.
An increasing number of homeowners now own homes where the market value is less than the original purchase price. This is not necessarily a problem provided that the property owner can continue to make the mortgage payments because, over time, it is likely that the property will eventually be worth as much or more. When it becomes a problem is when the loan payments cannot be made because of a need to move, an increase in variable interest rates or other unforeseen events in the owner’s situation affecting his or her ability to keep up the payments.
Given the choice, many Lenders would prefer the Short Sale because in the final analysis, even if the house was repossessed, it could only be sold for the market value and, all things considered, a Short Sale usually ends up costing the lender a lot less in the long run.
From the borrower’s perspective, the short sale prevents having the foreclosure on the borrower’s credit history, and releases the borrower from an obligation that he or she can no longer afford. In essence, a short sale is a sale transaction subject to a lender’s approval in which the lender consents to a sale of the security interest for less than what is owed on the note and accepts the proceeds in full satisfaction of the loan amount.
A short sale requires much paperwork and preparation on behalf of the Seller and a unique perspective and plan on the part of the Buyer. Typically, before applying for a short sale, the seller must have a ready buyer and all the paper work prepared to present to the lender. The buyer of the property must also be prepared for a protracted time period to conclude the purchase of the property.
Sellers need to know that a short sale may damage their credit, though not as much as a foreclosure. Also, many lenders will only agree to a short sale if the seller is behind and has received a default notice. Buyers may get a great property at a discount, but they also will need to go through some extra paperwork too.
