I think this past year the word short sale has become part of societies vocabulary. I got to thinking though how many people actually know what they are talking about when they say short sale? So I started taking note of my conversations with various people as I went about my day to day life in Massapequa and realized that 90% o the time when people are talking about a short sale they really have no clue what they are talking about! One such conversation I had recently was a friend of mine from high school who said to me - its no big deal I will wait for the house to go to short sale and then I will just "low ball" the bank and get a great deal on the house. So I asked said friend what he thought a short sale was and his explanation was not even close. This got me thinking that if my savy friend who was a pretty successful business man in his own right did not understand what a short sale was there was a pretty good chance that most people probably didn't know what it was either. I will try to explain what a short sale is in its simplest form. A short sale is when a homeowner is short on their mortgage and must sell their house. Meaning when the house value is less than the mortgage owned on the home. For example a buyer bought a house in 2007 in Massapequa Nassau Shores for $450,000, and put down $25,000 dollars mortgaging the balance. Today the same buyer must sell his house and it is worth only $380,000, the seller is short $45,000 plus the selling commission. This is when we have a short sale! The agent along with the sellers attorney must negotiate with the bank on behalf of the seller to allow the seller to sell short and allow the seller to walk away from the shortfall. The seller must prove hardship and that he does not have any money to cover the short sale. If there is money in the seller's bank account the bank may ask for some money from the seller. The bank is not going to eat the balance of a loan because somebody made a bad investment and they don't want to pay their share, they will however eat it if the seller can prove hardship.
Another question people have is why would the bank not just foreclose rather than lose the money the seller is short? Simply becuase its about money. It makes more sense for the bank to negotiate a short sale then it does to foreclose economically. Its a win for the seller in that he can keep his dignity, its a win for the bank who has mitigated their loss and its a win for the buyer who gets a property in a distress sale situation allowing it to sell for under market value.
If you would like more information about short sales please contact me at sdonnellanre@gmail.com. or visit my site www.TheLIRealtor.com
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