{"id":1115,"date":"2020-12-02T06:00:41","date_gmt":"2020-12-02T11:00:41","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=1115"},"modified":"2024-04-25T23:20:27","modified_gmt":"2024-04-26T03:20:27","slug":"what-is-a-short-sale-and-what-does-it-mean-for-home-buyers","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/what-is-a-short-sale-and-what-does-it-mean-for-home-buyers\/","title":{"rendered":"What Is a Short Sale \u2014 And What Does It Mean for Home Buyers?"},"content":{"rendered":"\n
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When you\u2019re browsing the listings, you might encounter the\nterms pre-foreclosure <\/em>or short sale<\/em>. What\u2019s the scoop on these\nhomes?<\/p>\n\n\n\n

It all starts when homeowners with mortgages find themselves\nunder water \u2014 property values drop, and a homeowner owes more on the loan than\nthe house is worth. Further, the owner has fallen on difficult financial\ncircumstances and is unable to find assets or sources of income to keep covering\nthe regular monthly payments. Hoping to avoid foreclosure<\/a>\nand keep some control over the transfer of the property, the homeowner asks the\nlender to approve a short sale of the home \u2014 meaning the lender will agree to\nreceive less money than the outstanding mortgage balance from an unrelated\nperson who buys the house.<\/p>\n\n\n\n\n\n\n\n

Unless a foreclosure process is already well underway, the lender\ncould agree to a short sale, simply to avoid the high costs of foreclosure.\nOften, a bank won\u2019t foreclose until the homeowner attempts to make a short sale\n\u2014 hence the phrase pre-foreclosure<\/em>.<\/p>\n\n\n\n

As with most other listings, the homeowner in a short sale\nputs the home on the market and negotiates with buyers through real estate\nagents. But there is one major difference. Even if the lender does say yes,\nit\u2019s OK to do a short sale, that lender isn\u2019t bound to accept just any offer. After\nall, it\u2019s the lender who is being paid through a short sale. So, the lender may\ngo through with the sale \u2014 or foreclose instead.  <\/p>\n\n\n\n

After facing foreclosure<\/a>, a homeowner must wait three to seven\u00a0years before getting another mortgage. A short sale, which is a negotiated settlement<\/em> undertaken voluntarily by the homeowner, can shorten that wait. A short sale may\u00a0impact the seller\u2019s credit<\/a>\u00a0less harshly than a foreclosure, too. Still, having a mortgage in default<\/a>\u00a0lowers a homeowner\u2019s credit score. A negotiated settlement is negative history, and it will probably remain for seven years as a visible part of the short sale seller\u2019s credit record.<\/p>\n\n\n\n

Of course, foreclosure and short sales are not the only\nremedies for a mortgage that can\u2019t be paid. For example, you might consider how\nboth compare to the deed\nin lieu of foreclosure<\/a>. <\/p>\n\n\n\n

\u261b<\/strong> Read more<\/strong> <\/strong><\/em>about various <\/strong>alternatives to foreclosures<\/a><\/strong> worth\nconsidering when a homeowner cannot keep up with monthly mortgage payments.<\/strong><\/p>\n\n\n\n

How the Short Sale Process Works<\/h2>\n\n\n\n

To start the ball rolling, a homeowner approaches the lender.\nThe lender gives the homeowner a list of required documents, as it would in an\ninitial mortgage application process. Usually the homeowner writes a statement\nthat the home\u2019s value does not cover the debt and there are no other assets or\nother means to repay it. If the lender is convinced that short sale makes the\nmost sense, it will approve the request \u2014 but it doesn\u2019t have to; and,\ndepending on state law, the lender can even go after the homeowner for what it\ndoesn\u2019t recover through the sale through a deficiency judgment<\/em>. <\/p>\n\n\n\n

The real estate agent lists short sales, and creates\nthe contracts between sellers and buyers, subject to mortgage lender approvals.\nIf and when the lender accepts a final contract, the parties attend the closing.\nThe mortgage lender receives the sale proceeds, and removes the original mortgage\nlien, clearing the title. Finally, the deed is conveyed to the buyer. <\/p>\n\n\n\n

But if there are other lien holders \u2014 for example, banks\nthat let the homeowner borrow home equity lines of credit \u2014 it won\u2019t be so\nsimple. These junior lien holders also have an interest in the property, so their\napproval is necessary as well. Expect them to require contributions before\nthey\u2019ll remove their liens. Sellers who cannot or will not come up with the\nextra funds may blow the whole deal unless the buyer agrees to step in and pay\nthe extra costs.<\/p>\n\n\n\n

Note:<\/em><\/strong> In some short sale agreements, the mortgage lender waives the right to go after the homeowner for the deficiency \u2014 the amount of debt not paid back through the short sale. Yet the homeowner could owe tax on the benefit of a deficiency waiver. Learn about Home Foreclosure and Debt Cancellation<\/a> directly from the Internal Revenue Service on its website, and get assistance with tax questions<\/a>.<\/p>\n\n\n\n

If You\u2019re Interested in Buying a Home Through a Short Sale <\/h2>\n\n\n\n

Are you thinking\nof buying a home<\/a>? Then you could come across a short sale listing that\nsparks your interest. Is the listing you\u2019re looking at subject to bank approval\n(review required), or is it pre-approved by the bank? If it\u2019s pre-approved for the\nshort sale, you know the lender is already prepared to let the home go at a\ncertain price, which puts you one step ahead in the timeline. <\/p>\n\n\n\n

Should you decide to pursue the short sale listing:<\/p>\n\n\n\n