Selling Your Home as a Short Sale
A short sale occurs when a property is sold for less than the balance owed on a loan secured by that property. For a short sale to occur, the mortgage lender must agree to accept less than the amount owed. Lenders generally only agree to discount the amount owed if there is a financial hardship on the part of the borrower. Short sales are often seen as a preferable alternative to foreclosure.
In many cases there is more than one entity that holds a lien on a property. Junior lien holders such as lenders of second mortgages or home equity lines of credit (HELOC’s) and homeowners associations may also need to approve a short sale. Additionally, there may be tax liens or mechanic’s liens on a property and those lien holders will also want to be paid. If there is mortgage insurance on the loan, the insurer could be asked to pay out a claim to offset the lender’s loss. Because of this, the insurer may want to participate in the negotiations as well.
Depending on how many parties are involved, the short sale negotiation process can be very time consuming and complicated. This being the case, many short sale transactions do not close.
Like a foreclosure, doing a short sale will adversely affect a person’s credit report. In addition, depending on what is agreed upon in negotiations, a seller may have to repay some of the debt. There may also be tax consequences on debt that is forgiven.
I strongly recommend that individuals considering doing a short sale consult with an accounting professional and an attorney. It is important to fully understand the implications before deciding to go the short sale route.
Buying a Short Sale Property
For buyers considering purchasing a short sale property there are a number of things to think about before submitting an offer. First and foremost is the potential for it to take several months before getting an answer as to whether or not the short sale has been approved. There is often infrequent communication between the seller and their lender and therefore limited information updates can be passed on to the buyer. The uncertainty and waiting involved can be very stressful.
Like bank owned homes (REO’s), short sales are generally sold “as is” and therefore it is important to be cautious when buying. Once under contract you will have an inspection period during which the home can be looked over carefully. The contract can be cancelled during the inspection period if the condition of the home is determined to be unacceptable.
I Am Knowledgeable About Short Sales
As part of my commitment to staying abreast of current trends and market conditions, I have invested time and resources in becoming more knowledgeable about short sales. To that end, I have obtained both the National Association of Realtors® Short Sale and Foreclosure Resource (SFR) designation and the Certified Short Sale Negotiator (CSSN) designation.
Buying a short sale home may be a difficult process but for some it is worth it. There are some good deals to be had. For those in a position to wait, short sales may be an attractive real estate opportunity.