What does a Short Sale mean?

     A short sale in real estate is the sale where the proceeds fall short of the balanced owed on a home’s loan. This typically occurs when a borrower or a homeowner could no longer catch up on his mortgage payments. In this type of sale, the borrower will present a proposal to his or her lender or bank rather than face foreclosure. The bank or the lender will then make a decision to sell the property at a moderate loss than pressing the debtor. Both parties should consent before a short sale could be processed.

     A homeowner in danger of foreclosure, lets say, owes a mortgage of $400,000. He or she could make a written offer to the lender or bank to sell it at $320,000, which is accepted as full payment of the loan. Why do banks and lenders accept a short sale? It is because banks dislike the idea of excess inventory and bad loans on their books and will try to look for ways to sell the property without much loss. Lenders on the other hand will consent to a short sale rather than an auction because of the fees and hassles involved in an auction. They would be better off accepting a minimal loss and be done with it as soon as possible.  

      In a short sale, the kind of house or the condition it is in does not really matter, all mortgages could be discounted. The best properties to do a short sale are those that are in dire need of work and repairs because the lender could give a bigger discount. Normally, there are several considerations that would convince a lender to agree to do a short sale, especially if the home is located in a depressed area where sales are nothing but low.

     A person’s credit report will be affected by a short sale, but the negative impact is definitely lesser than that of a foreclosure. This will remain on his or her report seven years at most, depending on other relevant credit information. It is possible to get another mortgage between one to three years after a short sale.

     It is best to do this sale when a homeowner is ninety days late on his or her payments and has no other means of settling and with not much equity to sell fast. This could also be an exit strategy for a homeowner who is not delinquent but just staying afloat and anticipating a delinquency.

     A homeowner is thrilled to find an offer to avoid a foreclosure by doing a short sale. When he or she is bind financially four payments behind on the loan, a foreclosure could just be around the corner. This allows a homeowner to eliminate the mortgage debts without the expense of repairs to get out from under the home. It also helps to avoid a negative impact on the credit report.

     Seek the aid of a professional when negotiating this sale; it could be the difference owing thousands of dollars down the road and end up owing nothing. However, be careful in choosing a real estate agent to help you, most agents do not understand the meaning of a short sale, they are not pros and sometimes could get their client stuck with owing the bank or the lender debt that is already forgiven.