What is a Short Sale? A Short Sale occurs when a home seller is allowed by their lender to sell the home for less than what’s owed on the mortgage.
If you are a home seller you may be thinking – I like that idea – not having to pay back as much as I owe – well, of course, it’s not that simple. Typically several things need to occur before your mortgage holder will consider a short sale:
1) You are delinquent on your house payments
2) You have no other assets or ability to cover what you owe
3) Short Sale is the only option to avoid Foreclosure
4) Lender considers short sale necessary and possible
Why would a lender accept less than what you owe? Foreclosures are expensive for the lender – as much as $50,000 or more when all is said and done. If foreclosure is eminent then accepting a short sale loss may be less of a loss than foreclosure.
Lenders are not required to allow a short sale – they are 100% in control – and if you have a 2nd loan, like a home equity loan – then both lenders have to approve the short sale.
Impact of a Short Sale to a Home Seller:
1) Can not receive any money from the sale of the home at closing.
2) Credit will be damaged (typically less than a foreclosure)
3) The lender may file a deficiency judgment against the seller for the balance of their loss (the difference between what they received at closing versus what the seller actually owed)
4) Short Sale may have IRS implications where forgiven debt is considered income – currently there is a moratorium against this – it’s called the Debt Forgiveness Act.
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Impact of Short Sale to a Home Buyer:
1) Offer to Purchase agreement is between buyer and seller, with a contingency that lender must approve
2) The purchase price will probably be less than market value
3) Can take weeks or even months for the lender to approve
Bottom Line – Short Sales are anything but ‘Short’- They are complex real estate transactions – if you have any questions about short sales let me know!
Thanks for Reading our Cary Real Estate Blog. Post Authored By: David Williams
David’s a Licensed North Carolina Realtor & The Voice of CaryRealEstate.com