About| Property Search| List Property| Advertise| Contact

RSS Feed Twitter YouTube LinkedIn Facebook Pinterest G+

Understanding the Basics of a Short Sale

by Marquette Turner Luxury Homes

in Features, Real Estate Radar, Variety

What is a Short Sale?

This is a term used in real estate to describe a transaction or home purchase in which the price at which the property is sold is less than what the owner of the property owes as mortgage loan on said property. This therefore means that the lender or mortgage company will agree to recoup only a portion of the amount that was due to come to them.

This type of sale is usually initiated when (among other things) the borrower can no longer afford to keep up with the payment of their mortgage for any number of reasons that must be proven. You can read all about it here.

How does it Work? Is it a Foreclosure?

This is not in any way to be confused with a foreclosure. Though both sales are aimed at helping the lender recoup their money, the process and end result are distinctly different. This will be clear as we describe the process that this takes.

While a foreclosure is a forceful takeover and sale overseen by the bank or mortgage provider, a short sale is carried out by the property owner but with the consent of the bank.

First, the property owner lists the property to be sold as a short sale. No permission from the lender is required for this. Upon receipt of a suitable offer, the property owner who is also indebted to the lender, approaches the lender with the offer and seeks permission to proceed with the sale.

The sale can only go through if the lender approves it. Before giving this approval, the lender will seek to be convinced with necessary documentations that indicate that cutting their losses by accepting only a part of what is owed them is the best financial move to make at the time. You can get more details here: https://www.thestreet.com/personal-finance/mortgages/what-is-a-short-sale-14638378

We will now look at some reasons or situations where a short sale will be a viable solution.

House for sale - short sale

Why You May Need Opt for a Short Sale

Let’s start by noting that generally speaking, a short sale is a better option for the property owner than a foreclosure. With a foreclosure, the bank takes possession of the property and it is duly noted that because of your inability to repay, the property was taken off you. This has a terrible impact on your credit score.

On the other hand, a short sale allows you take control of the situation by offering the lender something less to cover for the debt. Once done, your debt is cleared. This puts your credit in a situation from which it can easily recover.

So, a short sale may be considered and approved by a lender for the following reasons:

The Value of the Property Has Dropped

It must be shown that the value of the property is not what it was and that the balance to be paid to the lender is more than what the property is currently worth. 

The Home Owner Can No Longer Afford the Payments

One thing the lender is sure to consider is the ability of the home owner to continue with the repayments. If it is shown that the home owner has fallen on financial difficulties (lost job, ill health, bankruptcy, divorce or even death), then the mortgage provider may consider a short sale and not a foreclosure if the first point above holds true.

Broken house

The Home Owner Has no Assets

The availability of other assets provides alternative options for the mortgage provider to recover debt owed. When this is not available and inability to continue with the repayments for a property that is no longer worth what it used to be is ascertained, then the stage is nicely set for a short sale proposal.

The three conditions listed above are necessary if a mortgage provider will consider approving your request.

Setting Up a Short Sale

If you have considered all the options at your disposal and you think your property is qualified for this, a good way to go about it is to consult an expert. Look around you for realtors who can properly guide you through the process.

It is particularly important that you focus on those operating in your locality. If for example you reside in Riverside CA, your best move will be to look for a short sale realtor in Riverside CA. A local realtor understands the terrain, the price of real estate and also probably has a relationship with local lenders.

This type of sale should be considered as a last resort. Though the seller enjoys some benefits, it is important to understand that the seller will be coming out of this deal without a penny to their name from the sale. Seek professional advice to be sure that this is indeed the route you should take.

Leave a Comment

Previous post:

Next post: