What Is A Short Sale?
A short sale is a complex real estate transaction where the lenders agree to allow a homeowner to sell their property for less than the amount owed on the property. In other words, it is like a
normal real estate sale, with a buyer and a seller, but in a short sale
the contract between the buyer and the seller is subject to the third
party approval of the lender(s) or mortgage servicer(s) of the
outstanding loan(s). The reason the real estate transaction is subject
to the third party approval of the lender is because in a short sale
the lender must agree to write off or take a loss on the portion of a
mortgage that is higher than the value of the home.
A short sale is a difficult residential real estate transaction to
manage and get approved by the lender. It involves almost as much
paperwork as it took to obtain the mortgage itself, and generally
requires the homeowner to prove a financial hardship as to why the
short sale should be approved. Not all lenders will accept short sales
or to write off any portion of a mortgage. Often lenders are not
satisfied with the payoff in the contract between the buyer and seller
so there is much negotiation between the parties. The paperwork
involved in a short sale is unique and each lender often has different
procedures in place for handling short sales.
This seems like a difficult and arduous process, and sometimes it often
is. However, in general, a short sale is a better option for a current
home owner then bankruptcy or foreclosure proceedings. This is because
a short sale allows the home owner to sell the property and remove the
secured debt associated with the home. Moreover, the seller can walk
away from the sale with significantly less damage to their bottom line.
A home owner who chooses a short sale typically experiences
significantly less impact to his/her credit and can sometimes negotiate
a full release from his/her mortgage obligation.
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