What is a Short Sale?

What Is A Short Sale? 

Foreclosure on a home has serious consequences for the family, the community, the housing market, and the economy. A short sale, however, provides a way for struggling homeowners to prevent foreclosure and many of the dire consequences that occur as a result.

A short sale is an agreement in which your mortgage lender agrees to accept a payoff on the loan for less than the balance. Lenders typically agree to a short sale because they receive more of the loan balance in comparison to the amount they would gain from selling the property following a foreclosure. This process also has the benefits of maintaining home values in the community where the property is located and helps the homeowner maintain a better level of credit compared to a foreclosure. In most instances, homeowners considering a short sale must be behind in your mortgage payments, provide evidence of economic hardship, and presumably have no equity in the property.

A short sale is not a typical real estate transaction, in the sense that usually real estate transactions involve just a home seller and a buyer. In a short sale situation, even though you are the legal owner of your own home, your lender makes the decision as to what the property finally sells for. If you have more than one mortgage, there may be two lenders involved, and they may be represented by loan servicers, and sometimes there is a mortgage insurance company that gets involved as well.

With so many parties involved in a short sale, you will need a realtor to help guide you and act as a liaison between all of the parties involved, and who makes sure that you have the full information that you need at your disposal and will help you make the best choices. Best to find a qualified realtor with experience in short sales will manage all the paperwork for you, and through active marketing be able to find a buyer to complete the transaction. Homeowners agreeing to a short sale should also consult a tax expert and an attorney.

What are the advantages of a short sale?

1) More control

With a short sale your feel more in control of your personal circumstance. Sure, you have not been able to keep your agreement with the bank. But you are in relationship to them. You are making the best out of a difficult circumstance. You also have influence over when you have to move.

2) Stay in Your Home Longer

Typically approval on a short sale takes 90 days. Sometimes longer. And this is from the time that you receive an offer. Then there is additional time for the offer to close. The average short sale takes about six months to complete from beginning to end. We joke that it should be called “a long sale”, but it does normally give you more time in the home than with a foreclosure.

3) Stay in Your Home for Free

Most lenders will not consider a short sale application until the homeowners is in arrears, sometimes by two months. Therefore during the short sale process, you don’t be expected to make any more payments.

4) Less of a Hit on Your Credit

Your credit is less impaired than with a foreclosure

5) Easier Recovery

This enables you to repair your credit and be in a position to purchase another home within the relatively near future, hopefully before home prices escalate again

6) Government Incentives

The Federal government is currently offering incentives to both homeowners and banks to conduct short sales, as they feel it is beneficial to everyone, through the HAFA (Home Affordable Foreclosure Alternatives) Program. You may obtain a $3,000 grant towards moving expenses at the end of a short sale.