Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Short Sale
An ideal way to purchase a real estate property is through Multiple Listing Services (MLS) with the help of a real estate agent.
There are other resources that an individual might approach to buy a new property.
One such option is to purchase through a short sale. In this post, we will learn what is a short sale in real estate.
What Is A Short Sale In Real Estate?
A real estate short sale takes place when a property owner has serious financial challenges and sells his or her home for less than the mortgage amount owed to the lender or the bank.
Once the property is sold in this type of sale all the proceeds go to the lender or the bank that holds the mortgage and the remaining amount could be either forgiven or could file for deficiency judgment by the bank or the lender.
While this may seem less than a complete solution for lenders, it still might be a better option than foreclosure, especially if the different loan amount is forgiven by the lender.
Buyers often take advantage of these offers because these sales are a way for homeowners and lenders to get out of financial trouble by losing money.
However, buyers should be aware that these types of investments may not always make sense.
How Does A Short Sale Work?
This kind of sale usually takes place when the borrower is in financial difficulty and unable to pay one or more mortgage payments. This usually follows through the foreclosure process.
This is even more likely to happen when the housing market is down. This is what happened in the financial crisis of 2007-2009, causing house prices to drop and sales to slow in various regions.
To buy a property in this kind of sale, the lender must approve it first. When a homeowner sells a house the bank receives the entire balance amount from the sale proceedings.
However, in such transactions, the lender does not recover the full amount because the house sold for less than what the seller owed to the bank. Therefore, the original lender or the bank must approve the sale.
The seller should be able to show that this is the only option. The seller must show some sort of financial difficulty.
Lenders will agree to this if the borrower can prove that they can no longer repay the mortgage and it will default, especially if the lender or the bank wants to avoid going through a foreclosure process.
The price of the house must correspond to its market value. Often, such sales occur because the market is shaken and house prices fall as a result.
The price paid by the buyer should usually be at the current market price for that property.
Finally, if your home is listed for less than your mortgage, you must first disclose it. Potential buyers should be aware that since the sale price of the house is lower than the mortgage, they are responsible for negotiating with the seller and with the lender.
Who Is The Short Sale Beneficial For?
It is a mix of benefits for lenders, sellers, and buyers.
If you’re a seller, this kind of sale can hurt your credit, but it’s not as bad as a foreclosure.
You will also leave the house with no money from the transaction, which will make it difficult to find and pay for alternative accommodation.
However, this kind of sale can prevent foreclosure and its major impact on your credit. It is less impactful than a foreclosure as long as the homeowner can ask the lender to declare the debt as “paid in full” to the credit reporting agencies.
The buyer may get the property at a low price, but the property may have other structural issues.
The conclusion of the agreement requires a significant bureaucratic process. The buyer may not get the benefits of the seller concessions which they usually get in a regular real estate transaction.
The lender will have to take the loss by7 forgiving the remaining balance. However, this could be a better option for a lender compared to the cost and time incurred in a foreclosure process.
Conclusion
A real estate short sale could be one of the best options for the borrower to avoid foreclosure, as it can have a drastic impact on your credit and could lower your chances of getting a mortgage in the future.
If you are getting an option to buy a property in this type of sale, though the price is low, make sure the property is well maintained and stays within your budget even if there are some minor repairs needed.
