What is a short sale?
A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. Instead of buying from a seller, you are purchasing the property directly from the lender for a discount. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $300,000. You write an offer to the lender for $220,000, which is accepted as full payment for the loan. This is a short sale. Why are they willing to take such a discount? Several reasons. First of all, banks do not like excess inventory and bad loans on their books; therefore, if they see an opportunity where they can sell the property without a huge loss, they will do it. Secondly, lenders know they could lose a lot more money if the property goes to auction. There are so many fees involved if the property goes to auction, that they would be better off taking the discount beforehand and be finished with the headache of it all. At the time of this writing, foreclosures are at an
A short sale takes place when the proceeds of a real estate sale fall short of the amount owed on the property. A short sale typically is executed to prevent a home foreclosure. Often a bank will allow a short sale if they believe it will result in a smaller financial loss than foreclosing. For a home owner, the advantages include avoidance of having a foreclosure on their credit history. In summary a short sale is the process of negotiating with lien holders a payoff for less than what they are owed, while successfully transferring title to a property.
A short sale occurs when a lender agrees to forgive the debt of the mortgage that is higher than the value of the home, provided that there is a buyer willing to purchase the property. For example, if a homeowner owes $300,000 to the mortgage lender, but the home is only worth $290,000 due to the market, the homeowner would request that the lender accept $10,000 less to payoff the loan.
A short sale happens when a property in pre-foreclosure is sold and the lender of the property agrees to accept a discounted payoff, meaning that the lender will release the lien that is secured to the property upon receipt of less money than is actually owed. The lender thus forgives the remaining balance of the loan, but is also able to unload the asset rather quickly. Short sales can be good for the buyer, the seller, and the lender. If you are the seller a short sale is likely to damage your credit, but not as much as a foreclosure would have. If you are the buyer, you get the property at a reduced price but the property may have its share of problems, and will need to go through considerable red tape in order to make the deal happen. If you are the lender, you will take a financial loss from the short sale, but not as large of a loss when compared to a full foreclosure on the property.
