This is a question we get asked all the time. What is a short sale? A short sale is when a mortgage lender accepts a discount as a payoff on a loan to avoid a possible foreclosure, auction or bankruptcy.
They are essentially agreeing to sell the property for today’s market value instead of what is owed on the mortgage, they are “short selling” the property”
The mortgage lender is agreeing to sell a property for less than what is owed on the mortgage. (Essentially they agree to take a loss)
In most cases the owner of the property would need to show some sort of hardship to qualify
For example:
Mary and Bob fall 3 months behind on their mortgage payments because Bob recently lost his job.
They currently owe $525,000 on their property.
The market value of the property in today’s market is only $500,000.
Since they are behind on their mortgage payments and “upside down” on the value of their house they could work with their lender to agree to a shot sale.
Doing this the lender would allow the sale of the property at $500,000 and take the loss. Mary and Bob get their home sold, their loan(s) paid off and have successfully avoided foreclosure.
How much does a short sale cost?
The best part is the mortgage lender pays nearly all the costs involved with the sale, meaning a distressed property owner does not incur any costs (it’s free from them!)
I’m upside down, what should I do?
The effects from the last market can still be felt today.
Nearly 20% (9 million people) of homeowners across the US are considered distressed or “upside down” on their mortgages. Meaning, they owe more on their mortgage balance than their properties are actually worth.
If you are upside down on your mortgage a short sale can be the perfect solution because you can sell the property at today’s current market value.
Why do a Short Sale?
Some people think that when they fall behind on payments or are upside down on their properties value they should just walk away and give up their home to foreclosure…
But Hold On!
There is light at the end of the tunnel…
There can be some big time benefits to doing a Short Sale rather than a foreclosure.
To the homeowner, there is little difference because either way, they will be a walking away from a depreciating asset
BUT the benefits of a Short Sale are in favor of the homeowner.
Let me explain,
Credit Impact: For starters, Short Sales affect a person’s credit significantly less than a foreclosure (most of the time, please contact a professional to examine your case individually). Someone who “Short Sells” a property is more likely to qualify for a new mortgage in as little as 12-24 months, whereas a foreclosure and/or bankruptcy will haunt someone for up to 7 years. Depending on how many late payments (if any) are missed during a short sale, will determine how much your credit drops while a foreclosure will leave a massive mark.
Stress: On top of the credit impact most people never talk about the effect on homeowner’s moral when they are going through a foreclosure. It’s never a good feeling for someone that is just watching the bank take their house away. With a Short Sale, the homeowner will have more time to make moving preparations and the lender will work with you to come up with a resolution.
Homeowner Help: In a Short Sale the homeowner is 100% involved in the process, making their own decisions with the help and guidance of an experienced Short Sale Professional (contact us today for assistance). The Short Sale specialist will handle all communications with the lender, as well as market and sell the property with the help of a Real Estate Agent. This allows the homeowner a great alternative to foreclosure and is a very dignified way to sell a property!
Other options that homeowners have can be seen in our other post on: “Avoiding Forecloser – What Are My Options?”
If you would like more information on Short Sales and foreclosures, please contact us anytime.
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We hope you liked our blog on “What is a Short Sale? Avoiding Foreclosure”. For more local real estate related articles check out one of our many blog pages here.
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