What is a short sale?

As foreclosure rates hit record levels and property values have decreased in many areas, more sellers are turning to short sales as a way to avoid foreclosure. So, what is a short sale and how does it work? In a short sale, the seller arranges with their mortgage lender to accept a price that's less than the amount they owe on the property. As part of this arrangement, the lender may agree to forgive the rest of the loan. As a result, the seller doesn't have to go though a foreclosure, the buyer picks up a property at a discount, and the lender avoids taking on the burden of foreclosing and marketing the property.

The Lender 
A short sale typically is executed to prevent a home foreclosure. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. The mortgage lender will want to know the circumstances that caused the buyer to fall behind on mortgage payments and what future financial prospects for repayment may be. They will also do their own assessment of whether it is more profitable to approve the short sale or foreclose and put the home on the market themselves. Although most mortgage companies are helpful, their goal is to make money so they can ultimately decide to proceed with foreclosure.

The Seller
For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure.  Sounds good right? Well, sellers need to know that a short sale may damage their credit, though probably not as much as a foreclosure. Also, lenders generally will only agree to a short sale if the seller is many payments behind and has received a default notice.

Two increasingly common factors create the circumstances for a short sale:

1. Homeowners have no equity or negative equity. Generally that's because they bought with 100 percent financing (or took out extra loans after buying) and the house is worth less than they paid for it.  This can also happen because the value of the home has depreciated.
2. The homeowner can't make the payments. This may be caused by an adjustable-rate mortgage that has reset at a higher rate, perhaps adding hundreds of dollars onto the monthly payment.

The Buyer
Buyers may get a great property at a discount, but they also will need to go through some extra paperwork too.  Buyers need to be aware that buying a home on a short sale is not as simple as many would advertise. Purchasing a short sale home is very time consuming and sometimes frustrating. This is because offers must be accepted by the seller and then approved by the seller's mortgage lender.  Very few properties ever close in 30 days. 60 to 90 days is more realistic. Frequently, the lender demands the right to continue to market the property and reserves the right to accept a higher offer. So, while buyers area obligated to wait for the lender's decision, the deal can fall through if the lender receives a better offer or just decides to foreclose instead.

Should you decide to buy or sell in a short sale situation in Raleigh, Durham, or the surrounding communities, allow me to represent you.  With my experience, I can handle any short sale and work with you as a buyer or seller to shorten the process.

William "Art" Sexton
Sexton@RERNC.com
www.Raleigh-Real-Estate.biz

 

William "Art" Sexton
(919) 696-3302
Sexton@RERNC.com
www.Raleigh-Real-Estate.biz