About Short Sale Houses
A short sale on a house takes place when a bank, which is the lien holder or creditor on a mortgage taken out in connection with a house, accepts an amount that is less than what is owed in exchange for a release of the lien. This only happens when it makes financial sense for the bank to do so, and is common in cases when the homeowner is in default and behind on his payments or in foreclosure.
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Significance
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A shaky real estate market makes it even more necessary to have short sales on houses. Many of the houses out there are overleveraged, and the owners owe more than their houses are worth. In some cases it is largely due to the fall in housing values. In other cases, people refinanced and pulled cash out of their equity expecting that housing values will continue to rise. Of course the bubble burst, housing values fell and the houses become overleveraged. When people who own these overleveraged houses can no longer make their payments and a foreclosure complaint has been filed against them, a short sale can be used to mitigate the situation. The bank accepts a reduced amount based on the current value of the house, not on what is owed, and the homeowner is able to avoid foreclosure.
Function
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A short sale can be seen as a win-win-win situation. The bank wins because it is able to get bad debt off its books, the homeowner is relieved of the burden of a huge debt that she can no longer pay and a new buyer of the home gets a good deal on a house.
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Features
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In a typical short sale process, the homeowner would have missed a number of payments and is possibly in foreclosure. The homeowner can initiate the short sale process if he finds a buyer or works with a real estate agent to find a buyer. The bank would have specific forms or a short sale package that needs to be filled out. The bank would typically want to know the reason why the homeowner is in default and what caused any financial hardship that he may be experiencing. The bank will eventually get an appraisal of the house to determine its current market value. Once that is determined, the bank officer will accept or deny the offer of the buyer. Once it is accepted, the new buyer can go ahead and buy the house at a short sale--a value lower than what is owed but comparable to the current market value.
Time Frame
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The short sale process varies from bank to bank and can take between one and four months. How long it takes depends on how swamped the bank is with defaulted loans and the specific requirements of the investors who own the loans.
Expert Insight
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If you are buying a short sale house, you will need to be patient. The back and forth negotiations that go on with the bank take time, but the reward is a good deal on a house and the opportunity to help someone who is in foreclosure and in trouble. It is always better to work with professionals who know what they are doing when it comes to short sales. There are real estate consulting companies that specialize in this transaction. See the link in the Resources section below.
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