- A short sale is when the bank or lending institution accepts less to pay off the mortgage than is actually owed. There are many reasons for a short sale and lenders do not like them. However, in some circumstances it is better for them to take less than allow the borrower to go into foreclosure and sell the property later. Short sales take longer in most cases than conventional sales and require more paperwork.
- Short sales usually happen when a seller cannot make the payments on the mortgage any longer. This could be due to a job layoff, disability or a rate adjustment. The seller may not be behind in the mortgage payments but knows it won't be long before they are. In a good market where prices are high and properties are selling quickly, a conventional sale will get them out of trouble. But in a slow market where prices have gone down, they may not be able to sell the home conventionally and pay back their debt. In this case, an offer can be made to the bank for a payback of less than what is owed. Other reasons include job relocations or cut backs.
-
You can place your house for sale just as you would normally, except it must be noted that it is a short sale. This informs potential buyers that a bank is involved in the acceptance process of the offer. Once an offer is made, the sellers can sign the contract contingent upon lender approval. The contract then goes to the lender, where it goes through processes that vary depending on the lending institution.
Both buyers and sellers should be aware of other considerations regarding short sales. The buyer should request a thorough investigation of title to make sure there are no other liens against the property such as, property tax, Home Owner Association or construction liens. The seller needs to know if the lender is going to write off the remaining debt or send them an IRS 1099 for the shortfall. In most cases the lender will do a short appraisal on the property to find out its current value. These sales can take months to complete and many buyers drop out of the negotiations before settlement. Short sales can be lengthy and stressful but certainly worth it if it keeps the property out of foreclosure.
