Tuesday, December 15, 2009

What is a Short Sale?

A short sale is a sale of real estate in which the sales proceeds fall short of the mortgage balance owed on the property’s loan. Typically, a short sale is consider by a lender when a borrower has a financial hardship that prevents them from paying the balance owed on their mortgage loan and the borrower needs to sell to downsize, relocate or move for other reasons. The lender decides that selling the property at a loss is better than proceeding with collection efforts including foreclosure. Short sales are a type of debt settlement, and they can adversely affect a person’s credit report, though the negative impact is typically less than a foreclosure.

For a borrower, a short sale can be an alternative to foreclosure. It allows them to stay in the property until a short sale is approved by the lender and it is sold. Also, the borrower and lender consent to the short sale process and are involved with sale price negotiation. The borrower and lender can come to an agreement of any short fall of balance owed. In most cases, the lender settles for the amount received from the short sales net proceeds and the borrower receives no money from the proceeds. This is different from a foreclosure where the lender forces the sale at a price determined only by the lender. Any short fall of the balance owed from the lender’s forced sale and legal expenses could become a debt owed by the borrower.

Also, homeowners who complete a short sale can receive $1,500 from the federal government for relocation costs and there are incentives for lenders completing short sales.

A short sale can be a complicated and lengthy process. To proceed with a short sale, I suggest contacting a REALTOR® to discuss your options and help with guidance through the short sale process.