A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the current debtor.
Parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrower.
In a short sale, the bank or mortgage lender may agree to discount a loan balance because of an economic or financial hardship on the part of the borrower. The homeowner sells the home for less than they owe, and turns over the proceeds of the sale to the lender. It is very important to note that it does NOT extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer. It is very important that your Realtor knows to get this approval clearly expressed in the acceptance from the bank.
The banks have loss mitigation departments that evaluate potential short sale transactions. They are responsible for the multiple levels of approvals and conditions that are needed to move forward. Junior lien-holders – such as second mortgages, HELOC lenders, and HOA (special assessment liens) – may also need to approve the short sale. The wide array of parties, parameters and processes involved in a short sale makes it a relatively complex and highly specialized type of real estate transaction. Unsurprisingly, short sale deals have a high failure rate and often do not close in time to prevent foreclosure when they are not handled by a knowledgeable and experienced professional.
Yes, short sales still adversely affect a person’s credit report. Like all entries except for bankruptcy, short sales remain on a credit report for seven years. The weight that a short sale has vs foreclosure or bankruptcy is not clear. But it is commonly thought of not to adversely reflect on your credit for as many years.
If you are thinking of doing a short sale, make sure you explore all of your available options. Short sale of your home is a viable choice, but be sure to speak with an experienced Realtor before listing your home. Read more regarding Options For The Distressed Homeowner.
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Posted In Featured, Short Sales
This entry was posted on Thursday, February 4th, 2010 at 12:38 pm and is filed under Featured, Short Sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.