Does the Best Offer in a Short Sale Get a Sales Contract?
The number of people with mortgages who sold their homes through short-sale proceedings increased after the housing bubble burst in 2008. An increasing number of large national lenders have streamlined their foreclosure and short-sale procedures to accommodate the fallout of the sub-prime lending market. Typically, lenders award contracts to prospective homebuyers who offer the best sales contracts. Usually, in the real estate market, a buyer who bids the best offer is the one who offers the most amount of money.
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Overview
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Short sales occur when people with mortgages sell their homes for less than the amount they owe to their banks. When the borrowers don't have the financial means to pay the difference between their remaining mortgage loans and the amount the homes are worth, banks may agree to forgive the difference and allow them to sell their homes with negative equity.
Short Sales and Foreclosures
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Although short sales are similar to foreclosure sales, people with mortgages who negotiate short sales may be able to avoid damage to their credit reports. On the other hand, short sales may take longer to process than foreclosure sales. Lending guidelines may vary, but most lenders follow similar short sale procedures under the Home Affordable Foreclosure Alternative program created by the federal government. Qualifying mortgage debtors must be able to prove financial hardship and an inability to continue paying their current monthly mortgage notes.
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Real Estate Agents
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Once a lender approves a debtor's short sale application, it will assign a real estate agent to oversee the short sale. The real estate agent works with buyers and their agents to sell the merchandise as quickly as possible. Most real estate agents work on a commission basis and have a financial interest in negotiating the highest possible selling price.
Types of Contract Offers
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During short sale home sales, lenders agree to accept less than their borrowers owe, and, depending on state laws, lenders may sue the mortgage debtors for the difference through deficiency judgment lawsuits. If a lender can sue the debtor for the difference, it may value timing as more important than the contract sales price. In other words, to expedite the deficiency judgment process, a bank may accept a contract from a prospective homebuyer offering less than an offer placed by another homebuyer, based on the first buyer's earlier settlement date. In other cases, a lender may be unable to file a deficiency judgment lawsuit based on state laws or may decide against filing a lawsuit because the likelihood of recovering assets may outweigh the overall legal costs. In this case, a lender may decide that a larger offer is more important than timing.
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