What is a short sale?
Selling a home for less than the amount the current owner owes the mortgage company is called a short sale.
Buying a home that is a short sale is different from buying a property that is actually owned by the bank, known as an REO, or real-estate owned property, or a property that is in foreclosure.
All of this sounds arcane, but it's lingo that anyone shopping for a home needs to understand to navigate today's marketplace.
A short sale can be a good deal for a buyer, and it can help the seller avoid having a full foreclosure on his or her credit record. Although a short sale and a foreclosure negatively affect a seller's credit score, in a short sale the damage can be minimized if the homeowner can persuade the lender to report the debt to credit bureaus as "paid in full."
In a short sale, the proceeds from the transaction are less than the amount the seller needs to pay the mortgage debt and the costs of selling. For this deal to close, everyone who is owed money must agree to take less -- or possibly no money at all. That makes short sales complex transactions that move slowly and often fall through.
A recently announced extension of the government's housing rescue plan could make it easier to buy short-sale properties. The new version of the Making Home Affordable plan will pay lenders up to $1,000 if they allow a short sale of a property when the owners don't qualify for loan modification because they owe too much money on the home. The program will spell out a short-sale process and provide standard documents, the U.S. Treasury says.
The government's plan probably still won't help if there are multiple liens on the property, but it should encourage lenders holding the first mortgage to move the process along.
Keep your eyes wide open
If you're house hunting and spot what seems like a great deal, chances are good that you are considering a short-sale property.
Most of the time, the seller has already fallen behind on the mortgage, but occasionally the seller is current but unable to continue to pay because of ill health or job change. This is particularly true in parts of the country where home prices have fallen significantly.
If you are considering a short sale, call or email me and I will try and answer all your questions.
Short Sale Specialist in Tacoma, WA and Gig Harbor, WA
Helping people find a way out of foreclosure