Short Sale

Short Sales
What is a Short Sale?
A short sale is a transaction in which the lender(s) agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt. Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses. A short sale can also be the best option for homeowners who are “upside down” on a mortgage because a short sale may not hurt their credit history as much as a foreclosure.

The concept
of a real estate short sale can be attractive to all parties involved in the transaction. Lenders avoid significant fees incurred during a foreclosure filing and the possibility of selling a degraded property at an extreme loss at a foreclosure auction. The obvious benefits to the seller include preventing the negative credit impact that accompanies a home foreclosure. Discerning buyers can purchase a property at a price below current market value if the lender is willing to accept such an offer.

In practice
however, there are a number of complications that may make the short sale process uncertain, risky, and unattractive. Several parties need to agree on the closing price, which can be particularly difficult if there are multiple loans from different lenders on the property. Sellers sometimes list a short sale property at price that is unlikely to be accepted by the lender in hopes of attracting potential buyers. Buyers therefore have no guarantee that the bank will accept their offer, even if it is at or above the asking price.

Perhaps the greatest deterrent to buyers is the uncertain acceptance status and approval timeline. Buyers often wait several weeks for a lender to even acknowledge receipt of an offer. Ordering an appraisal, acknowledging receipt of the appraisal, beginning negotiations, accepting a final offer and closing may take several weeks each. The result is a highly uncertain process that may take anywhere from several weeks to more than a year. For buyers with scores of readily available properties within their price range, a property’s status as a short sale may be enough to preclude consideration.
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