Determining What Is Involved In A Short Sale

Posted by on Jul 31, 2010 in Foreclosures | Comments Off

A short sale occurs when a lien holder for the property agrees to a reduction in the property lien or loan to progress a real estate sale. A potential buyer of this property has the opportunity to purchase the property at a reduced sum. A short sale of a property is an alternative to allowing a homeowners property to be foreclosed.

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. 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. If a borrower has sufficient assets to pay for his/her mortgage, then a lender will not likely approve a short sale. Once a borrower hands in all the required documents for a short sale, then he/she begins to market the mortgaged property to prospective buyers. The process begins where bids to purchase the property are submitted and accepted. Potential buyers will then make offers for the property that are much 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. A review will be conducted by the lender of the borrower’s hardship qualifications. A review of the borrower’s financial information is performed. A short sale determination will be made for loan reduction acceptance. 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.

The borrower will have financial impact in the future of the short sale acceptance. For a while the borrower will have a financial impact from the release of the encumbered home loan. But the consequences are definitely far less than having a property foreclosed.

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?

Foreclosure is the last resort to the bank. Mortgage lenders are not happy holding a property since this is not their business forte. The financial resources of a lender are compromised by a foreclosure. A foreclosure could carry costs upwards of $30,000. 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. 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 Drawbacks When Buying a Short Sale ?

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.

 

 

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