Short Sales
What is a short sale?
A short sale (also known as a short payoff) occurs when a lender or lenders accept a discounted payoff on an existing mortgage and agree to allow $0 in closing to the homeowner to avoid the cost of a foreclosure. In other words, when a homeowner owes more than can be collected through a real estate sale, a short sale allows them to sell their property to avoid a foreclosure.
History of the short sale:
Lenders, underwriters and mortgage services began to accept short sales with the inception of the sub prime lending in the 1990's. Homeowners with less that perfect credit and little or no money down are at rick of finding themselves in a situation where the market value of the home is not enough to cover principle balances, late fees, attorney's fees and closing costs for those unable to make on-time payments. The short sale was conceived as the alternative solution to a foreclosure/REO property. Short sales have been growing in popularity with lenders over the past five years as an alternative to suffering the financial losses associated with a foreclosure. In the coming years, more and more homeowners will face the problem of being in a negative equity situation. Short sales are a way to manage inequity properties and allow the home to be sold with a clear title.
Benefits of a short sale:
Benefit to homeowners - Homeowners who owe more on the property than it is worth or those who do not have the means to pay for the closing costs may be able to qualify.
Benefit to investors - Short sales are becoming more and more popular with investors. An increasing number of your potential investment, rental and lease option properties will require short sale to create equity.
Benefits to lenders - we will see more homeowners with no choice but to short sale their property. Lenders are preparing for the increase in defaults by expanding their loss mitigation staff to process ore short sales.
Buying a short sale property:
In the current market, the majority of listings are either REO or short sales. Short sales are many times in better condition, but they can be harder to purchase. If you have the time to wait, you can get a great bargain on a very nice house, but if you are in a hurry to purchase, a short sale might not be for you.
Buyers pursue short sales to get a good deal. Making an offer on a pre-foreclosure, short sale home is not as simple as you may believe, and very few can close in 30 days or less. Many of home buyers have waited 4 to 6 months to close on a short sale, sometimes longer.
When you spot a short sale house that interests you, before you get all excited over the prospect of buying that short sale house, pick up the phone and call your real estate agent. Your agent needs to research that short sale listing first. Just because that home is listed as a short sale doesn't mean it's really for sale (because it's subject to lender approval), nor does it mean it will sell at the advertised price.
