Determining What Is Involved In A Short Sale

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. A short sale of a property is an alternative to allowing a homeowners property to be foreclosed.

Exactly What Does a Short Sale Entail?

There are a number of homes that might seem to qualify 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. 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. Now the property owner can accept bids to purchase the property. 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. 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.  Realty Gainesville explains this in detail.

What Impact Does A Short Sale Have on a Borrower?

There is no doubt an impact on the borrower. For a while the borrower will have a financial impact from the release of the encumbered home loan. However, the penalties of having the property foreclosed are far more severe.

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 Do Banks Accept Short Sales?

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 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.

There are Negative Points that Accompany Short Sales

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.