You may have heard the term “short sale” thrown around quite a bit by the media since the housing bubble burst, but it’s easy to mistake the phrase. Despite the word “short” in there, a short sale has nothing to do with height or duration; instead, it simply means that you’re selling your property short of the balance of the property’s loan. For example, if you owed $200,000 on your home and you couldn’t come up with the monthly funds to pay your mortgage, the bank could decide to short sell for $175,000. In a cases like that, the lender (bank) would rather take a hit on the final price than continue dealing with missed payments.
In order to short sell, both the borrower and the lender must agree to the process. Let’s say you’ve lost your job and you’re behind on your mortgage by a few months. The bank has been harassing you to pay up, but you can’t pay up with no income, so you cite financial hardship. The bank tells you that they are going to process the property as a foreclosure. In an effort to reach a middle ground to sell your home without going through a public foreclosure, you can put the property up for short sale. Choose a Realtor specializing in short sales, and try to get a buyer for the property.
Why would a bank agree to this? First off, they get an immediate payment and they secure the long-term viability of the property instead of leaving it in limbo. The bank also avoids having to deal with large fees involved in a foreclosure. For the borrower, it’s a means to an end that doesn’t impact credit scores as much as foreclosures do. In essence, it’s both parties agreeing to “take one for the team” rather than let the situation get any worse.
That’s the simplified version of a short sale and also a representation of the best-case scenario. However, things don’t always go that smoothly; other parties, such as junior lien holders, may have to approve and process rules can vary from bank to bank. For more information on short sales, contact me — there’s a wealth of information to understand before you should decide if it’s right for you.
Israel Gonzalez RDCPro, CDPE
Real Estate Broker
831-636-8858
http://bestreohomes.com http://nicereohomes.com
The views published here are the opinions of the writer and are not a substitute for legal counsel.
