What are short sales?

By
Real Estate Agent with REALTY EXECUTIVES

What are short sales?When a homeowner struggles with financial difficulties and is no long able to afford their mortgage payments, they often face foreclosure. Foreclosure destroys credit and often causes a homeowner embarrassment as their home is stripped away. When facing bankruptcy or foreclosure, there may be another option-- short sales. A short sale in real estate may save the homeowner from going through a foreclosure, but it isn’t always a pleasant event.

What are short sales?
A short sale is an opportunity some homeowners use when the lenders they have borrowed from provide an option of selling their home to a third party, which is usually the lender. The home is sold at a significantly lower price than what is still owed on the home loan. When a homeowner wants to avoid foreclosure, the approval from the lender to short sale allows the opportunity to sell their home at a very low rate, which may not be the best option when compared to foreclosure.

A short sale in real estate is often complex, and there are a few reasons why a lender may be willing to approve a short sale. The main reason a lender approves a short sale is because it will cost less than a home foreclosure. Short sales allow lenders to recover at least part of what they would end up losing should the home fall into foreclosure.

There are a couple of different options that are often offered when a short sale is obtainable-- a deficiency judgment and a payment in full without pursuit of deficiency judgment. With a deficiency judgment, the homeowner remains liable to pay the difference between the short sale and the balance of their mortgage loan. The deficiency judgment will remain on the homeowner’s credit report until the remaining balance has been paid, which often takes many years.

A payment in full without pursuit of deficiency judgment is the most popular choice as the homeowner isn’t required to pay any money after the short sale. They can walk away obligation free upon short selling their home.

Although a short sale in real estate may seem like the easy way out when facing foreclosure, there are certain drawbacks to short sales and it may not be the best option for everyone. If you’d like more information about the benefits and risks of a short sale, contact Steven Larson today.

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