Benefits and Drawbacks of a Short Sale

A short sale is when the lender agrees to accept less than the total amount owed on a real estate property. Though short sales do not protect your credit and you will see a drop in your credit score, a short sale may seem like a more favorable option than foreclosure for people that are in over their head.

Here are some reasons that a short sale may be the best option for you:

• You won’t have to make any mortgage payments, unless you choose to.
• You can meet the new owners, rather than abandoning your home.
• Typically, credit will be restored in as little as 18 months.
• You may be able to obtain a mortgage quicker than if you were to foreclose on your home, sometimes within just a year or two.

Drawbacks of a Short Sale

• The lender may still require the difference of the sale price and the amount owed on the property to be paid. There is no guarantee that the lender will not legally pursue the balance.
• It may be hard to sell your property through the short sale process and you may end up foreclosing anyway. There is no assurance that the bank will accept the short sale offer on the property.
• The approval of the sale from the bank may be a long and frustrating process.
• The derogatory entry on your credit report can remain there for up to 7 years.

Be cautious: Some real estate agents recommend short sales because they get paid commission on the sale from the lender to do a short sale. When the bank takes back the property through foreclosure, the agent will not get paid.

How To Do A Short Sale

A short sale is a sale of real estate property where the lender agrees to accept less than the amount owed on the property’s loan. Short sales are a way for homeowners to avoid foreclosure; however, 1) it does not always release the borrower from the obligation to pay the remaining balance of the loan to the lender and 2) a short sale will still negatively impact a credit report.

Short Sale Step‐by‐Step

1. How much is your property worth? Verify the value of your property either with a real estate broker or by comparing similar homes in the area.
2. Calculate the costs of selling the property, including all closing costs.
3. What do you owe on your property? This will be the total of all the loans against the property.
4. Determine the amount of the potential sale. Subtract total amount owing from the value of the property. If the number is negative, this means it will be a short sale.
5. Contact the lender to discuss your specific situation; if possible, talk to a supervisor or manager.
6. Discuss the procedures for a short sale with the lender, whether the lender reduces the amount owed or by making other arrangements. Some lenders believe that your debt is your responsibility and will not entertain other arrangements.

Almost any option is better than foreclosure

Simply stated, do everything you can before foreclosure occurs and do it as quickly as humanly possible. Don’t sit back and keep thinking, "What can I do?" Instead, consider that short sale and check with your lender before your options become more limited. Use a Lender that is a member of ActiveRain.