A Short Sale is Better than a Foreclosure

From the Superpages.com

In real estate, a short sale is a transaction in which a property is sold for less than the amount that is still owed on the mortgage, due to hardships visited upon the owner. For a short sale to take place, the lender must agree to accept the discounted pay in order to release the lien secured to the property.

Advantages and Benefits

There are three groups that benefit from a short sale transaction.

• Homeowner or seller – The homeowner benefits from a short sale in a couple of ways. First, the loan is paid off, relieving the individual of the debt, as it is discharged. Second, foreclosure is avoided. By avoiding foreclosure, the property owner does not take the credit rating damage that comes with a foreclosure or a bankruptcy.
• Banks/ lenders – Although banks/ lenders take a loss, a short sale may be a more satisfactory solution than foreclosing. They get their money more quickly and are not burdened with extra costs of foreclosure or the property lying fallow while it sits unsold. Worse, they may end up losing more money if a bankruptcy procedure is initiated.
• Buyer(s) – The buyer is able to acquire a property at a discounted rate.

The primary disadvantage to a short sale is that the seller will have a negative entry on his or her credit report, but it is recorded as “pre-foreclosure in redemption” rather than “debt discharged to foreclosure.”

Conducting a Short Sale

A short sale begins by assessing the value of the property. If you are using a real estate agent, that person can provide this information. If you are doing it on your own, you can determine the value by looking at the sales of similar properties in your area.

Next, calculate all the costs involved in the sale. Again, if you are using a realtor, he or she can tell you what the closing costs will be. If not, a title company and a real estate attorney can help you with this information.

When all this data is assembled, contact the Loss Mitigation Department (or whatever department is designated to handle this kind of transaction) of the lender. The lender will have several questions and additional requirements in order to move forward. Pay attention to everything they request, and assemble everything. Their main concern is that all of the money is being turned over to them, and the owner is not pocketing anything.

Be Prepared

Do not be surprised if your first offer is declined. The lender is trying to get as much of the original loan amount as possible. In order to enhance the probability that the short sale can go through, gather as much hardship information as possible about the seller, so that the lien holder understands that a short sale is in their best interests.