The Short Sale – A Friendly Alternative to Foreclosure
So what’s a short sale?
Essentially, a short sale is the friendly alternative to a foreclosure. A short sale occurs when a seller is “short” the cash needed to repay their loan. A short sale happens when you sell your home for less than the amount owed on your mortgage. This is often used as a way to avoid foreclosure. In recent years, short sales have been increasingly rare but with the recent market downturn, expect to see an uptick in foreclosures and short sales as homeowners fall behind on their payments. For a lender to consider a short sale two things generally have to be true:
- The homeowner must be far enough behind on payments that they won’t be able to get caught up.
- The housing market has dipped so significantly that that home is worth less than what’s still owed on a mortgage.
Understanding what’s involved:
Whether you’re buying or selling a house through a short sale, know that it can be a lengthy process for all. There’s generally extra paperwork included in these types of transaction and it’s a good idea to work with a real estate agent who knows the ins and outs of handling them.
Lenders or banks generally lose money when they foreclose on a property, so short sales can be a way to cut their losses. Lenders typically agree to a short sale in order to recoup a portion of the loan owed to them.
Additional considerations for sellers and buyers:
As the seller, the short sale will likely hurt your credit. While a short sale is certainly preferable to a foreclosure, you won’t be getting out unscathed. For buyers considering buying a short sale, this may be getting a great deal on a property, but it will likely have its share of problems and require at least some work. There’s also a longer timeline associated with purchasing a house this way so be prepared for the process to take upwards of 100 days.