What is a Short Sale?
A short sale occurs when a seller’s lender agrees to accept a discounted payoff for an existing mortgage as a last-ditch effort to avoid foreclosure. While a short sale is granted when the homeowner is able to prove hardship or economic distress through documentation, a lender might consider a short sale regardless if the seller is in default or not. There are several advantages of a short sale to all parties involved – the homeowner avoids a detrimental foreclosure on their credit record, and a short sale is typically faster and less expensive than a foreclosure for the lender.
Short sales have become an acceptable alternative over the past few years, due to the high costs incurred by a lender to foreclose on the borrower. Mortgage companies are more willing to accept an amount less than is owed by the borrower. An example of a short sale is:
A homeowner borrowed $300,000 in 2004 to purchase his home, but declining market conditions have decreased the home´s value to $250,000. The borrower has exhausted all personal resources to continue making house payments, and has no equity left in the home. He is tapped out. In addition, real estate fees and closing costs would be another $20K. This is when a trained and experienced short-sale expert can make all of the difference. Before the home goes on the market, there are procedural steps that must be taken by the homeowner and the Realtor to create an acceptable package to be submitted to the lender(s). Once the paperwork has been submitted to the lender(s), the lien holders will insist that the home be listed at a price that will bring in an offer.
Negotiating a short sale agreement with a lender is a complicated and time-consuming process that should never be done with an agent who is not knowledgeable and experienced in the process.
