Understanding Exactly What Is A Short Sale?

If you are in the market to buy a home you have surely come across homes being offered as short sales. You may wonder exactly what is a short sale? A real estate short sale is when the property lien holder has agreed to lessen the outstanding balance to faciliate a sale or transfer of the property to a new owner. One other alternative to a short sale is for the lien holder to foreclose on the homeowner’s property.

How Does a Short Sale Work?

Just because your home has fallen in value since you bought it and you feel it is a waste of money to pay for a declining asset does not qualify you for a short sale. A lender will only approve a short sale if only a true financial hardship is in existence. In addition, foreclosure of the property seems to the next step as a result. To consider a short sale request from the borrower a lender must be satisfied that no assets are available to pay the mortgage. Lenders will not consider short sales if funds can be applied to pay the mortgage loan. Once all paperwork has been submitted and it has been determined that the borrower can qualify for a short sale then the property is listed for sale to potential buyers. The process begins where bids to purchase the property are submitted and accepted. Potential buyers will then make offers for the property that are much lower than the fair market value of the property. Multiple offers can be submitted to the home owner. Once an offer is accepted by the borrower, it is forwarded to the lender for approval. At this stage, the lender reviews the hardship of the borrower, reviews the borrower’s financial documents and determines acceptance of the amount derived from the sale of the property. Keep in mind that the mortgage lender is not approving the sale of the house. The lender is only acknowledging that the receipt from the property sale will be applied to settle the outstanding mortgage on the property.  Realty Gainesville explains this in detail.

What Impact Does A Short Sale Have on a Borrower?

A definite effect will fall on the borrower for the release of the mortgage loan. It is only  reasonable to expect certain ramifications from a loan reduction. Foreclosure of the home would carry heavier consequences than a short sale.

Some of the more pertinent effects of a short sale on a borrower are:

1. An impact on a credit score of about 80 to 100 points

2. A 2 year wait before a borrower can obtain another mortgage

3. A possible deficiency judgment from the lender although this can usually be negotiated away with a professional negotiator.

4. Tax consequences for an investor property. Primary residences are exempt for debt forgiveness.

WHy Do Banks Accept Short Sales?

Mortgage lenders are not in the business of holding homes and therefore want to avoid foreclosure if at all possible. The financial resources of a lender are compromised by a foreclosure. A lender could incur up to $30,000 in costs for a foreclosure. If the property becomes an REO for the lender then cash reserves are required to be put aside for up to 6 times the value of the REO. This restricts the use of these monies, not allowing for better investments. One of the first jobs of an REO Officer is to liquidate properties acquired by foreclosure. See the short sale button on Gainesville Fl Homes for details.  Therefore, it is truly in the best interest of the lender to work out a short sale where permitted as opposed to going thru the foreclosure process.

There are Negative Points that Accompany Short Sales

Routinely short sales are much slower being approved as compared to regular sales. The lender needs to approve the offered sum for debt liquidation and this can be a long process. While the results may be beneficial to the potential buyer, patience is needed in a short sale transaction.What can go wrong with a buyer purchasing a Short Sale? – Even with short sale approved properties, banks and lenders can still reject offers from buyers.  Some of these causes could be buyer qualification, appraised value showing a large variance between offer price and appraised value, etc.  Having an educated agent help buyers with the short sale process is important to make the transaction move forward toward a purchase.  You can get more information about short sales from Homes in Gainesville.