What is a Short sale?
Basically, it is when the mortgage holder allows the homeowner to sell their property for less or “short of” what is owed on the mortgage. As part of the deal, the lender forgives some or all of the debt.
Why would the lender do that?
Good Question, typically its to avoid foreclosure which is a more time consuming and costly process for both the bank and the homeowner. The losses the bank incurs on a foreclosure are 10% to 12% higher on average than that of short sales, notes Corelogic.
Why would a homeowner agree to a short sale?
To get out of a loan they can no longer afford. Also, shorts sales don’t inflict as much damage on a persons credit history as foreclosures do.
What Buyers need to Know.
There is nothing short about a short sale! If you are looking for a quick escrow or closing, forget it. It can take anywhere from two to ten months to close a short sale. Depending on the lender , there can be lots of hurdles and lots of paperwork to get the bank to approve a deal.
You can get a good deal.
The appeal of a short sale of course is that you can get a a price break of anywhere between 3 to 5 percent but you have to be realistic, if you see an eye popping deal chances are it will not fly with the bank. They will have it appraised and if its worth more than your offer the smoking hot deal will disappear.
Do Your Homework.
You can avoid some of the hassles if you pick properties that have been through the process previously , meaning buyer fell out of escrow. This typically means a lot of the issues with approval have been resolved. You also want to avoid deals where the bank has not approved the short sales process yet.
What Sellers need to know:
Talk to experienced short sale agent. Choose a licensed agent that is well versed in the procedure of working with the banks and closing short sale deals. Its not a process for a rookie realtor. Also before you jump into a short sale talk to both an attorney and a certified public accountant to avoid potential pitfalls.
Understand the Consequences:
The reason you consult with experts, short sales have some drawbacks. First, there is always the chance the lender can sue for the debt that it had supposedly given. Also, the loan amount you didn’t payback has the possibility of being taxed by the the IRS. Finally, if you have a 2nd and 3rd loan, the holders of those notes may try to get their money back in civil court.
