This is a stressful decision for many families; however, a short sale may be the best solution, short of foreclosure, for homeowners who owe more on their properties than they are worth. Technically, a homeowner is ‘short’ when the outstanding loan is more than the current market value of the property. A short sale occurs when the homeowner finds a wiling buyer and then negotiates with the lender to accept less than the full balance of the loan at closing (typically to avoid foreclosure). Once the buyer closes on the property, the property is considered 'sold short' of the total value of the loan. The procedure requires stamina but it can yield favorable results for all. Organization and full disclosure will also help you manage through the process.
In the past it was rare for lenders to accept short sale proposals. With overwhelming market shifts and changes in corporate policy, lenders have become much more willing to work with homeowners in distress. Since a short sale generally costs the lender less than a foreclosure, it can also be a way for the lender to reduce their losses.
To qualify for a short sale, homeowners must prove all of the following circumstances:
Financial Hardship - A situation is causing the borrower to have trouble affording their mortgage.
Monthly Income Shortfall - Basically the borrower has more expenses than income, which will, or already is, preventing them from affording their mortgage.
Insolvency - The borrower does not have significant liquid assets to allow them to pay down their delinquent mortgage.
Why Buy a Short Sale?
Buying a property in short sale can be a big hassle, so why consider it? Basically it all boils down to the bottom line - you will usually get the property for a (substantial) discount. Lenders may even be willing to offer favorable financing terms in order to move the process along and secure their original investment. Additionally, the owner in default typically plays an active role in the short sale process, which means you will have their cooperation (unlike a foreclosure).
Before You Purchase
When dealing with the short sale process, there are a few things you need to know beforehand:
Working with Representation
Whether you are a first-time homebuyer or experienced investor, it is always wise to work with a REALTOR® when dealing with short sales. The right professional can move you through the process more efficiently, and guide you through the challenges that commonly accompany distressed sale transactions. When interviewing potential agents, be sure to inquire about their experience with short sales and find out if they hold any designations for buying and selling distressed properties.
Making an Offer
An experienced REALTOR® will be extremely beneficial at this juncture in the buying process. Here are some key factors in a successful offer:
This information is meant as a guide. Although deemed reliable, information may not be accurate for your specific market or property type. Please consult a REALTOR® professional for more information on making a written offer.
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