What is a Short Sale
A short sale is a real estate transaction in which the lender agrees to accept less than the outstanding mortgage balance. A short sale typically indicates a financially troubled homeowner who has to sell the house quickly to avoid the lender foreclosing on it.
The lender receives the entire sum of money from a short sale. The lender then has two options: forgiving the remaining debt or seeking a deficiency judgment that calls on the former homeowner to make up the shortfall in the exact amount or part. In many situations, the lender can forgive the total amount of the deficiency. Still, the borrower may be responsible for the taxes for the shortage. Therefore, the lender may also seek a personal judgment to pay back the short-sale difference, typically through a payment plan. With that said, a short sale may be a better option than a foreclosure, but what is the difference between the two?
Short Sale versus Foreclosure
If you get behind your mortgage payment, a short sale or a foreclosure is a looming possibility. Both are not easy ways out, but a short sale is voluntary and has less repercussion on the borrowers’ credit. It is generally recommended that a home buyer wait at least three years after a short sale to apply for a mortgage. However, some lenders may accept applications two years after a short sale. Represented buyers will still transact with the short-sale sellers, but the lenders must approve the transaction. A foreclosure, on the other hand, is involuntary. The lender already took legal action for the owner’s eviction due to nonpayment. The lender technically owns the mortgaged property and is now selling it to recover their loss. In dealing with already foreclosed transactions, the represented buyers are now dealing with the lender rather than the previous owner. While both will hurt the former owner’s credit score, a short sale will not be as detrimental as a foreclosure. Still, a foreclosure will be on one’s credit record for seven years. Therefore, it might take a minimum of five years before being eligible to purchase another home.
Do I need a real estate agent for a short sale?
The answer is yes. If you are an owner considering the possibility of a short sale, an expert’s opinion is the best first step for you. An excellent real estate agent by your side will make the process less complicated. Your agent can help you develop a short sale package to be submitted to your lender for approval. First, the owner must establish that they have no means or resources to pay their mortgage. Once the lender gives the green light, the property is ready for listing and marketing. Short sales typically take a couple of months or more to complete and involve a lot of paperwork. You will want to consider a certified short-sale real estate agent with the designated SFR Certification.
Should I consider a short sale property if I am a buyer?
A short sale property can be a good deal if you go into it with enough knowledge. It can be an excellent investment if you have time and are not in a hurry. The waiting game might not be something you would want if you were in a hurry to get your own place. There is also the possibility of buying the house “As Is.” Since the lender is ultimately the one calling the shots, there might be a slim chance for any negotiations regarding making repairs before the sale. This is the part when the home inspection would be necessary. It is a way to expedite the process, but skipping the home inspection might do you more harm than good. Finally, a short sale could be a slow and challenging process that involves more paperwork than the usual real estate transaction. It can be overwhelming if you do not have a real estate expert to walk you through every step, help you understand the paperwork and the process, and ensure that your experience will be nothing short of excellent.
Benefits of Purchasing a Short Sale Property:
1. More Affordable – Some short-sale homes are usually priced lower than other homes in the area, so you can potentially purchase the property at a discounted rate.
2. Less Competition – When it comes to short sales, there is typically less competition from other buyers which can mean fewer bidding wars and a better chance of securing the home you want.