What is a Short Sale?

A short sale occurs when a homeowner sells a home for less than what is owed on the loan and the lender agrees to accept that amount as payment in full. Properties that are “upside down” or “underwater” are considered short sales or short pay transactions. Once a rarity our marketplace, short sales are now common place in real estate markets all over the country.

 

Why should a Seller consider a short sale?

 

Many homeowners that are not familiar with a short sale believe that Bankruptcy or Foreclosure are the only options. In reality, both can be avoided, which can help rebuild a favorable credit score, avoid potential default judgments, and promote the opportunity to move beyond what will hopefully be a temporary challenge in that homeowner’s life.

 

A short sale is an excellent opportunity for a homeowner who can no longer afford his monthly mortgage payments, owes more than the property is worth, and has a Buyer who is ready, willing and able to purchase the property.

 

A short sale is typically preferable to a Foreclosure or Bankruptcy, as the impact on a homeowner’s credit report is generally less significant. Recent reports have indicated that Foreclosure and Deed-in-Lieu of Foreclosure may result in a hit on the homeowner’s credit of approximately 250 to 300 points. Bankruptcy can be up to the same, and oftern a Foreclosure is not avoided, simply stalled. It was also reported that the affect of a short sale on a Seller’s credit is usually much less damaging and can appear as a “compromised” or “settled” status, resulting in less of a blemish on credit. With less of an impact on your credit report, it is more likely that you will be able rebuild credit in a shorter period of time.

 

Homeowners who have lost their home in foreclosure may not be able to purchase again for 5-7 years years. Homeowners who short sell their home may be able purchase again within 2-3 years.

 

Waiting Period Resource Guide

 

 

Why Would Your Lender Agree to a Short Sale?

Lenders view the benefits of a short sale primarily in financial terms. It’s very expensive for a lender to foreclose on a home. Costs may include legal fees, eviction costs, taxes, insurance, maintenance, HOA dues, and future selling costs.
 
If the lender does foreclose on a home, the property becomes BANK OWNED and now shows up as a liability on the lender’s balance sheet. Banks and lenders are in the business of lending, not owning.

 

Are you a Good Candidate for a Short Sale?

There are four general criteria for a short sale.
 
1. The market value of your home must be less than the loan amount.
 
2. You must be financially insolvent. A homeowner facing foreclosure will not be enough to justify a short sale. If the homeowner has money or assets elsewhere, the lender will not be open to negotiating a short sale. Even though the short sale will usually cost the lender less than a foreclosure, the lender is still losing money.
 
3. You must demonstrate a hardship that made it difficult or impossible to make loan payments. A hardship may be that the loan has adjusted, job loss or loss of overtime, a medical problem or the death of a spouse. Whatever the case, a homeowner must provide documentation to support the hardship. Most lenders will also ask the homeowner for a hardship letter explaining the particular situation.
 
4. You must be willing to cooperate with the short sale process. The homeowner must be willing to work with the Realtor, lender, and buyer. The lender will require specific documentation from the seller and the entire process can take months. Lenders may reject offers and buyers may walk away from deals if they get impatient waiting for an answer from the lender.

 

NOT SURE if you are a Candidate for a Short Sale?

 

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