What is a Short Sale?
If you are in the market to buy a home you have surely come across homes being offered as short sales. You may wonder exactly what is a short sale? A real estate short sale is when the property lien holder has agreed to lessen the outstanding balance to faciliate a sale or transfer of the property to a new owner. One other alternative to a short sale is for the lien holder to foreclose on the homeowner’s property.
What is Involved in a Short Sale?
Just because your home has fallen in value since you bought it and you feel it is a waste of money to pay for a declining asset does not qualify you for a short sale. In order for the borrower to be eligible for an approval from the lender for a short sale, there has to be a financial hardship. Likewise, foreclosure on the property appears likely. To consider a short sale request from the borrower a lender must be satisfied that no assets are available to pay the mortgage. Lenders will not consider short sales if funds can be applied to pay the mortgage loan. 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. Bids can be accepted by the property owner from potential buyers. Typically these offers from the prospective buyers will be lower than the fair market value of the property. Multiple offers can be submitted to the home owner. Once an offer is accepted by the borrower, it is forwarded to the lender for approval. 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. If you need some more information to better understand you can see Gainesville Realty, for assistance.
What are the Consequences of a Short Sale for th Borrower?
There is no doubt an impact on the borrower. No one can realistically expect to walk away with no ramifications. Yet having the property foreclosed would carry a much heavier burden into the future.
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.
Is the Bank Being Wise to Accept a Short Sale?
Foreclosure is the last resort to the bank. Mortgage lenders are not happy holding a property since this is not their business forte. The act of foreclosing on a home places a burden on the financial resources of any lender. Costs of foreclosing for a lender could be in the $30,000 range. If the property becomes an REO for the lender then cash reserves are required to be put aside for up to 6 times the value of the REO. 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. 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
Time for Approval – Short sales can take longer than a regular sale because they need to get approval by a third-party, which is the bank or mortgage holder. In the long run the buyer can benefit, but the buyer must be aware that this short sale process can be approval lengthy. Other problems can accompany the short sale purchase. – 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.
Jill D. Schmitt is a licensed professional in Florida Real Estate Broker for Homes in Gainesville. Jill, concentrating in Gainesville Realty, has written several articles to help inform people in buying and selling their homes.