You Need To Understand What A Short Sale Is

You are seeing a lot of property listings labeled as short sales and wonder what does this mean. Basically, a short sale means that an agreement has been made with the property lien holder to accept a lower loan balance for the buyer’s selling purposes. One other alternative to a short sale is for the lien holder to foreclose on the homeowner’s property.

How Does a Short Sale Work?

Sadly, recent home buyers have purchased homes during the last few years only to see a significant drop in the value of the home. Yet this single event does not allow a person to ask for short sale qualification. However, for a borrower to qualify for an approved short sale there has to be a legitimate situation where they have a financial hardship and that foreclosure on the property is inevitable. When sufficient assets are available to a borrower to pay the mortgage, a lender will not even consider a short sale request. Once all paperwork has been submitted and it has been determined that the borrower can qualify for a short sale then the property is listed for sale to potential buyers. A prospective buyer can submit bids to the property owner for the purchase of the property. Typically these offers from the prospective buyers will be lower than the fair market value of the property. The borrower then decides to accept an offer on his property or not. Any offers the borrower approves are then submitted to the lender for acceptance. At this stage, the lender reviews the hardship of the borrower, reviews the borrower’s financial documents and determines acceptance of the amount derived from the sale of the property. Keep in mind that the mortgage lender is not approving the sale of the house. The lender is only acknowledging that the receipt from the property sale will be applied to settle the outstanding mortgage on the property.  Realty Gainesville explains this in detail.

The Drawback to the Borrower of a Short Sale.

A definite effect will fall on the borrower for the release of the mortgage loan. It is only  reasonable to expect certain ramifications from a loan reduction. Foreclosure of the home would carry heavier consequences than a short sale.

Some of the more pertinent effects of a short sale on a borrower are:

1. An impact on a credit score of about 80 to 100 points

2. A 2 year wait before a borrower can obtain another mortgage

3. A possible deficiency judgment from the lender although this can usually be negotiated away with a professional negotiator.

4. Tax consequences for an investor property. Primary residences are exempt for debt forgiveness.

Why Would A Bank Accept a Short Sale?

No mortgage lender wants to hold homes. This is not their business and they want to avoid possible foreclosures. A lender is apprehensive of a foreclosure because of the financial limitation placed on its assets. A lender could incur up to $30,000 in costs for a foreclosure. If the property becomes bank owned or an REO, then up to 6 times the value of the REO  has to be held in cash reserves. This restricts the use of these monies, not allowing for better investments. One of the first jobs of an REO Officer is to liquidate properties acquired by foreclosure. See the short sale button on Gainesville Fl Homes for details.  Therefore, it is truly in the best interest of the lender to work out a short sale where permitted as opposed to going thru the foreclosure process.

What are some negative points in a short sale purchase of homes

Routinely short sales are much slower being approved as compared to regular sales. The lender needs to approve the offered sum for debt liquidation and this can be a long process. While the buyer can get a significant cost saving from the new home there are drawbacks. The approval process from the lender can be very long and frustrating. Other issues accompany the short sale. – Even with short sale approved properties, banks and lenders can still reject offers from buyers.  Some of these causes could be buyer qualification, appraised value showing a large variance between offer price and appraised value, etc.  Having an educated agent help buyers with the short sale process is important to make the transaction move forward toward a purchase.  You can get more information about short sales from Homes in Gainesville.