A short sale is the sale of real estate for less than the owner owes on the mortgage. It is an alternative to foreclosure and is usually a better option for both the lender and the property owner, though it’s not an ideal situation for either. This k ind of sale allows the owner to pay back at least a portion of the debt, with the lender sometimes agreeing to work with the debtor to settle the mortgage.
This type of transaction usually allows both parties to cut their losses and can be a good alternative to foreclosure. In some cases, short sales can benefit the buyer, seller and lender. Here are some things each party should consider.
Seller:
This type of sale allows the seller to use the money from the sale to pay off at least a portion of the debt and, while it still hurts his credit score, it often hurts less than a foreclosure. There may also be terms in the contract that allow for the debt to be settled after the transaction is complete.
A short sale also retains many of the benefits of a regular home sale. That is, the seller can stay in the home until the sale is final and thus have time to make other living arrangements. A short sale may or may not be less devastating to his credit score than a foreclosure, but handling the loss of a home like a sale brings benefits you can’t get with a foreclosure.
Lender:
By definition, a short sale might sound like a horrible idea for lenders. They are, ultimately, losing money. But it can be a good option for a number of reasons.
For one thing, it allows lenders to get some payment for a mortgage that a person might not be able to pay in full. The process might also be less costly to the lender than a foreclosure and might not hurt a lender much if the home is in an area with a lot of homes for sale.
The lender also has a lot of power to define the terms of a purchase. Lenders usually have the final say in the sale of the property and define the terms of a short sale with a debtor. In some cases, that means lenders can retain their right to go after a debtor for a deficiency judgment, though some choose not to. These types of agreement are usually handled on a case-by-case basis, so lenders can make the best of them.
Buyers:
Buying a home on a short sale can be complicated, so it’s a good idea for a buyer to hire a real estate agent with experience in this area. Buyers who are willing to research a property, work with lenders and be patient as things are approved can enjoy the benefits of buying property this way.
The most obvious benefit is that the property will be cheaper. Both the buyer and the seller are taking a loss on the sale, and that can be a great benefit to buyers. You will also most likely be competing with fewer people for the property because of the length of time it takes to close a deal, so it can be easier for you to win a home with a lower offer.
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