Understanding Exactly What Is A Short Sale?
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. A refusal of the lien holder to accomodate a short sale could likely result in foreclosure.
Exactly What Does a Short Sale Entail?
There are a number of homes that might seem to qualify for a short sale. For a borrower to qualify for a short sale a financial situation must be in existence that is causing a real hardship. Also, foreclosure seems to be a current consideration. If a borrower has sufficient assets to pay for his/her mortgage, then a lender will not likely approve a short sale. 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. Now the property owner can accept bids to purchase the property. These bids will usually be less than the fair market value of the encumbered 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. The next step is for the lender to determine the actual hardship status of the borrower. The lender will review the borrower’s financial situation and make a determination if a short sale will be accepted and the amount for loan release. 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.
The Drawback to the Borrower of a Short Sale.
A definite effect will fall on the borrower for the release of the mortgage loan. No one can realistically expect to walk away with no ramifications. 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.
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. 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. 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.
Understanding the Possible Problems With a Short Sale
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 results may be beneficial to the potential buyer, patience is needed in a short sale transaction.What can go wrong with a buyer purchasing a 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.
Jill D. Schmitt is a licensed Florida Real Estate Broker for Homes in Gainesville. Jill, concentrating in Gainesville Realty, has written several articles to help educate the public in buying and selling their homes.
categories: Homes in Gainesville,Real Estate Short Sales,real estate,home selling,selling short sales
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