What Are Short Sales?
In determining what are short sales, it is important to understand they serve as a valuable tool for any homeowner that finds it nearly impossible to sell their house. In fact, sometimes it is the only alternative to foreclosure. Unfortunately, many individuals that sell their house on a short sale give up profit in exchange for getting out of an undesirable financial position.
When a home is sold in a short sale, the property owner agrees to let the buyer purchase the house for an amount less than what is owed on the home’s mortgage. The only way this can happen is upon approval of the lender. In many incidences, a short sale will leave the seller owing substantial amounts of money to the mortgage lender. Even so, it provides better opportunities than foreclosure. This is because it can help protect the credit of the seller while offering substantial benefits to the home buyer.
What Are Short Sales Advantages?
In reality, the seller, buyer and mortgage lender can gain significant advantages through a short sale of the property. Even so, not every lender will be willing to agree to a short sale, nor does every seller qualify.
With the recent downturn in the economy, and the heavy impact on the real estate market, many homeowners are facing foreclosure. This is coming at an enormous cost to the mortgage lender. This is because foreclosing has substantial associated costs of taking back the house, and evicting the occupants.
Once the foreclosure is complete, the lender has the house emptied, and pays for all maintenance and repair costs while keeping the home for sale on the market. As a way to avoid the expenses involved, the financial lender may agree to allow the owner to sell their property well below the current value of the loan.
This often provides huge benefits to the buyer in their ability to secure a phenomenal deal on the purchase of a house that they might otherwise not be able to afford. This is because homes that are sold traditionally usually have all needed repairs made ahead of time. Alternatively, a short sale is usually a property that requires fixing up. This reduced price allows the buyer to get into a house at a lower cost, where they can use their own sweat equity to fix the place up.
What Are Short Sales Qualifications?
A pre-foreclosure sale (short sale) is often an available alternative to foreclosure if the seller meets a specific threshold. Qualification would include:
• The seller is facing a substantial hardship over the long term
• The seller is currently behind on mortgage payments
• The seller is ineligible to modify or refinance their mortgage
• The seller currently owes more on the loan when compared to the home’s value
• The seller is unable to sell the house for an amount that would cover the mortgage
• The seller no longer has the ability to pay for their home, and is in need or ready to leave
While the benefits are plentiful for the seller, buyer and sometimes mortgage lender, there are specific disadvantages. These include:
• The length of time the lender takes to respond to a short sale offer can be frustrating
• There is never any assurance that the lender will accept the offer for a short sale
• The lender will examine the seller’s liabilities, assets, bank accounts, tax returns and other information to determine hardship
• The lender may be facing derogatory credit remaining on their credit report for years
Even with these disadvantages for the seller, many still see the advantage of the short sale because it provides the opportunity to purchase another home after two years. This is true even if derogatory credit shows up on their credit report.