The term “short sale” is familiar to the majority of people who watch the news frequently. Stories about the “mortgage meltdown” and the “collapse of the housing bubble” often mention short sales, usually in relation to everyone who is underwater on their mortgage, homeowners whose homes are worth less than they are obligated to pay back on their mortgages. Although a few turn to “strategic short sale” as part of any calculated financial strategy, the majority can facilitate a short sale and avoid foreclosure with the right Realtor.
A short sale occurs when a home is sold for less than is actually owed on the mortgage loan. It usually comes about when a homeowner undergoing financial hardship falls behind on his/her mortgage payments. Unable to repay the debt simply by selling the house because he owes more than it’s worth, the owner is confronted with the possibility of foreclosure. To avoid losing the house, he appeals to his/her financial institution for permission to sell the home for less than he owes. If the lender agrees, the house is listed for sale and the short-sale process begins.
Short sales have benefits for all parties involved. To the seller, it’s a way usually the best way to prevent foreclosure. Short sales are less damaging to credit, plus they carry a better stigma since the seller is doing what they can to meet her/his obligation as opposed to just walking away. Lenders, which finance real estate, not sell it, also advantage more from short sales than from foreclosures. While estimates of the cost of foreclosures to the bank, corporate, or business owner vary, there’s no doubt that foreclosures are a major expense. Empty properties deteriorate quickly and therefore are vulnerable to vandals. In addition, the sale made prices of foreclosures tend to be substantially less than the prices involving comparable regular market houses. For a buyer, a short purchase presents the opportunity to purchase a home for less than market value, with much less risk than he’d confront if he were to obtain a foreclosure. Short sales are listed in much the same way as any other home, with full disclosure involving known defects. In a foreclosure, the bank or corporate proprietor makes no claims as to the situation of the home. In addition, a home up for short sale is occupied, or was lived in up to now. This makes vacancy-related deterioration much less likely.
A short-sale seller takes a credit rating hit (decline in credit), but not as significant a hit as she’d/he’d deal with with in a foreclosure. In addition, you may be liable for paying income taxes on the difference between the amount the you owe on the mortgage and the sale price of the home. The House loan Debt Relief Act of 2007 excludes many sellers using this tax liability, but defense depends on a number of factors that should be discussed with a tax professional or lawyer. The disadvantage for the lender is obvious: The idea loses both the balance of the primary mortgage that goes unpaid and the interest that would have been due on the remaining term of your home loan. Buyers of short revenue can be dragged through a extended, laborious process. A short sale may take far longer to finalize than a typical sale. It isn’t really unusual for lenders to look at weeks or months to respond to offers, as an example. In addition, the home will be distributed as is–the seller will not make repairs. The seller’s disclosure involving defects offers some defense, but a very thorough home inspection is in order.
Short Selling Process
The seller works with a realtor to prepare a package for the financial institution that includes a letter describing your seller’s financial hardship, documents of his income and monthly bill payments, and a third-party acceptance granting permission for the loan provider to speak with the seller’s real estate agent about the mortgage loan and the sale. The lender approves the actual sale if the buyer makes a convincing case that he can not afford to pay his mortgage now or in the future. The lender and then hires a real estate agent or appraisal specialist to prepare a “broker’s price viewpoint,” or BPO, to get an estimate of the market value of the home. The owner works with his agent to find a list price, usually without any knowledge of the BPO estimate of value, and the home is listed available for sale. Once an offer is received by the seller that is acceptable to the seller, he relays it to the lender for approval. Since homeowners who short sale may not profit from a short sale made, there’s little incentive pertaining to him to withhold any kind of offer information from the lender. The faster an offer is acknowledged, the less likely he is to part with the house to foreclosure. Once the lender accepts the offer, a new sales contract is carried out and the sale proceeds within much the same way as any other sale.