The Process of Short Sales
What is a short sale?
A short sale is defined as the sale of Real Property in which the proceeds do not match the market value of the property. A short sale typically occurs when the owner of real property falls behind on their mortgage payments, but the lender decides that a short sale will be more financially beneficial to them then foreclosure. A short sale in many cases is an attractive option for both the lender and property owner. Foreclosure is a long process, that includes substantial fees and costs for the lending institution. Foreclosure also damages the borrower's credit and financial situation.
The Short Sale Process:
In a short sale, the lender agrees to lower the balance of a loan due to hardship on the part of the borrower. In this situation, the homeowner and their chosen REALTOR will list for sale and actively market the subject property, at a price that is typically below market value in order to maximize interest from buyers.
Typically, the first step in the short sale process is to have a realtor do a comparative market analysis to help determine what the home's current market value is, and what the asking price should be in order to ensure a quick sale. After the short sale process has begun, the borrower and their agent will market the home much like in a normal transaction. The selling process will move much faster due to the property's below market price. When an offer to purchase is made, the final acceptance or rejection of the offer will be made by the lending institution.
This step is usually taken "behind the scenes" by the lender's loss mitigation department. The loss mitigation department handles and evaluates short sale transactions on behalf of the lender, and attempts to limit the financial losses incurred. The loss mitigation department will ultimately decide what amount the bank will accept for the sale of the property in order to satisfy their interests, as well as pay any liens or judgments that have been levied against the property in question.
Once an offer to purchase has been made and accepted by the lender, the home will transfer to the new buyer. Many people believe that the process ends here, but that is not always the case. Often times, the lender will pursue legal action against the borrower in order to make up the deficiency between the amount owed on the property, and the amount the property sold for. Often times, this amount is forgiven as part of the short sale agreement with the lender.
How is a short sale different from a foreclosure? Unlike a foreclosure, a short sale must be consented to by both the borrower and lender. The lender may also decide against a short sale and proceed with the foreclosure process. Typically, when faced with foreclosure, a short sale is a better option for all involved parties.
The downside of short sales:
Although a short sale is financially and emotionally a more appealing option then foreclosure, short sales do have a negative impact. A short sale is considered a "settlement" of debt. Settlement does not look as bad on a credit report as a foreclosure, but can damage a borrower's credit report for up to 10 years.
Generally, if there are no other adverse items on your credit report, a short sale will only prevent you from obtaining other financing for about 2-years. Depending on the borrower's financial situation, it may be possible to obtain another mortgage in as little as 24 months.
Aside from the damage to the credit report, the borrower can also be pursued for the deficiency of the loan if there is not a written agreement made with the lender to forgive the debt. A deficiency judgment can lead to the garnishing of wages and liens being placed on the borrower's property.
The Evelyn Bruder Dream Team is qualified to facilitate your short sale. Our agents have many years of real estate and short sale experience in the Las Cruces area, and our expert negotiators are ready to represent you in your time of need.
Click here to learn how you can Avoid Foreclosure with a Short Sale.
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Feel free to call Evelyn personally at 575-650-7224 or email evelyn@homeslascruces.com
