What is a Short sale?
"Short Sale" has long been a common term in the field of stocks and investments. Recently though, it has also become a well known phrased in the world of Real Estate as well. Quite simply, a short sale is a sale that has been authorized by the lender to be less than the amount that is owed on a property.
Why Short Sales?
Why would a home owner need to resort to such drastic measures? A troubled economy can cause loss of income as well as a drop in home values. A homeowner may also have other hardships. Serious health problems or recent divorce can create a financial burden that is difficult to crawl out from under. When these things happen, a homeowner may have little choice when it is impossible to make the house payment and the bank wants to know why.
Short Sale - Foreclosure - Loan Restructure - Deed
Why would a lender accept a short sale when it will mean a certain financial loss? While there will be some loss financially, it may be far less than the loss involved if the lender was to pursue other courses of action. The lender has the following options:
- Foreclosure--There are costs involved when a lender decides to foreclose on a property. Not only will they incur attorney's fees, eviction fees & the possible fees of repairs to the home, but there is also the possibility of a greater loss when a home sells at auction for far below its market value.
- Loan Restructure-This may be a great option if the lender is willing to add missed payments to the end of the loan, or if they can reduce the interest rate. However, if the homeowner is in dire straights, this may not be enough to help.
- Deed-in-Lieu-of-Foreclosure--This involves signing the house over to the bank. Now the bank has become a real estate broker with the burden of marketing & selling the home. Most lenders do not want this responsibility.
- Short Sale--The lender recoups most of what they have loaned for a much smaller loss than other options offer.
Short Sale Benefits
The benefit of a short sale to the lender is that it saves them excessive financial losses. They will not need to deal with the additional fees involved in foreclosure. Nor will they need to be bothered with refurbishing, marketing and selling a home. They will be assured of getting at least the market value of the home instead of the risk of an auction that typically sells homes at far less than market value.
There are also benefits to the seller of the home as well as to the surrounding community. Consider that the seller will not have the blemish of a foreclosure on their credit report. In addition, a lender often will forgive the outstanding balance on the loan which allows the seller to move on financially. Occasionally, however, the lender may still seek a judgment for the balance owed.
The community also benefits from the short sale because a home that sells at market value protects the market value of their own homes. A home sold at auction for far less than current market value will cause the values of surrounding homes to decrease as well.
Using a professional to assist you will assure that no details are missed and things will proceed allowing the homeowner to move on. |