By Michael Nykiel, Mortgage Loan Officer
In simple terms, a short sale is a home that is available to purchase at a price that is lower than what the current owner owes on the property.
A short sale is an option that may be available to homeowners who are experiencing financial hardship. They may be behind on their mortgage payments and have a home that is underwater, meaning the home is worth less than the outstanding balance on the mortgage. Unless they come into cash quickly, the homeowner may be forced to sell the home and will be faced with two options: foreclosure and short sale.
Before attempting a short sale, the lender who is holding the mortgage must sign off on the decision. Typically the lender will need documentation explaining why a short sale is necessary because the lender could be the one losing money in the process. If approved, a potential buyer would negotiate with the current homeowner, and would then need to be presented to the lender for approval.
Short sales can be lengthy, and can take up to a year to fully process all of the paperwork. However, they are not as detrimental to a homeowner’s rating of credit, as a foreclosure would be. A short sale looks better to future lenders because it shows that the homeowner took action before the bank foreclosed on the property. A homeowner who has gone through a short sale may even be eligible to purchase another home immediately after.
When purchasing a home through a short sale, make sure that the short sale has already been approved by the lender. If the seller has not yet negotiated the short sale with their lender, you may be in a long wait and quite possibly for nothing. As a buyer, be prepared for a long process. It will test your patience. Due to the complexity of the transaction, it is best to work with a realtor who is familiar with short sales and the short sale process. Some agents specialize in short sales and may hold an SFR (Short Sales and Foreclosure Resources) designation from the National Association of Realtors.
In conclusion, whether you are a buyer or a seller in a short sale transaction, always make sure the current lender has approved the short sale in advance, and work diligently with a professional to get to the finish line much faster. Questions? Contact us here!