A Short Sale occurs when lenders agree to allow a homeowner to sell their home for less than the home owner owes on their home loan. This kind of a sale has to be approved by the lender any time the sale of a home will not be able to pay off the associated home loan from the sale. Someone has to take a loss, and it is usually the bank; in the form of the approved short sale. It is one of the options a borrower may have to avoid foreclosure of their home.
The seller is still the owner of the property in question; however, in order to transfer title to potential purchaser, the lender must release the lien on its collateral to the loan given to the borrower, which is the house.
Not all lenders will accept short sales or discounted payoffs, especially if they believe they will get more money from foreclosing and selling the home themselves.
Not all sellers or all properties qualify for short sales.
Why A Short Sale:
For Buyers:
Prices might be lower than with a bank owned property becuase the competition on short sale homes is less than with a bank owned;
While the home may need some deferred maintenance issues resolved, the repair issues in an occupied home many times are less severe as the repair issues with a bank owned home;
Seller will provide seller’s disclosures outlining the history of the home;
The buyer will be able to take possession of the home on the same date that they close;
The closing will be handled by a title company and the buyer will be able to get marketable title instead of insurable title.
Do Short sales work?
Yes, they do work but you must work with an agent that understands the intricacies of short sales transactions. There are many things that need to be taken into consideration when assessing if you as a buyer want to put an offer on a short sale home. For instance, your agent must find out how many lien holders there are, who the lien holders are, are there any offers in the works, is the property going to go be taken off of the market while the bank decides if the sellers accepts the offer? Etc.
For Sellers:
Short sales appear on your credit report as "pre-foreclosure in redemption", not as "debt discharged due to foreclosure"
A short sale can help homeowners avoided further collection activity or a foreclosure action;
Sellers can help maintain property values by ensuring that the listing agents are doing their homework with the listing price;
Sellers that remain in their home help decrease vacant homes in the neighborhood which attracts vandalism and subsequently decline in values;
There is a new law that comes into effect April 4th, 2010; where seller might qualify for 1500.00 relocation fees under the HAFA PROGRAM.
On the sale side, a good listing agent will list the property at a reasonable price; otherwise, the bank that has a lien against the property will not approve the sale price in the short sale. The property must be heavily marketed and once an offer is received the listing agent must submit a “short sale package” to the lien holder as soon as possible. This package is quite extensive, but is necessary if the lender is going to agree to take a substantial loss on a short sale. Sellers must consult with a CPA for possible tax ramifications.
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