Is a Short Sale Right For Your Situation?
A short sale is when a property is sold for less than what the homeowner owes on their mortgage. It typically occurs when the homeowner is facing financial distress and is unable to keep up with mortgage payments, but the market value of the property is lower than the amount owed.
Here’s a closer look at what a short sale entails:
Financial Distress: Short sales often arise when homeowners find themselves in financial hardship, such as job loss, divorce, medical expenses, or other circumstances that make it difficult for them to continue making mortgage payments. When homeowners can no longer afford their mortgage payments and are unable to refinance or modify their loans, they may opt for a short sale as an alternative to foreclosure.
Lender Approval: Before proceeding with a short sale, homeowners must seek approval from their mortgage lender or lenders. This involves demonstrating financial hardship and providing documentation to support the request. Lenders assess the homeowner’s financial situation and evaluate the potential loss they may incur through a short sale versus the costs associated with foreclosure.
Market Value Assessment: The lender will typically require an appraisal or a broker’s price opinion to determine the current market value of the property. This assessment helps establish a fair asking price for the short sale. If the market value is determined to be lower than the outstanding mortgage balance, the lender may consider approving the short sale.
Listing the Property: Once the lender approves the short sale, the property is listed on the market, usually by a real estate agent. The listing price is typically set below the outstanding loan balance to attract potential buyers. The homeowner and the real estate agent work together to market the property and find a buyer.
Purchase Offer and Negotiations: When a buyer submits an offer on a short sale property, the homeowner reviews and accepts the offer, subject to the lender’s approval. The offer is then submitted to the lender, who reviews it along with the homeowner’s financial information, market value assessment, and other relevant documents. The lender has the option to accept, reject, or counter the offer based on their evaluation of the property’s value.
Deficiency Judgment and Debt Forgiveness: In a short sale, the outstanding loan balance exceeds the sale proceeds. Depending on state laws and the terms negotiated with the lender, the homeowner may still be responsible for the remaining debt, known as a deficiency. However, in some cases, the lender may agree to forgive the deficiency or negotiate a reduced amount to facilitate the sale.
Finalizing the Sale: Once the lender gives their approval, the sale can move forward to the closing stage. At this point, all the required paperwork is signed, and the buyer officially becomes the owner of the property. The proceeds from the sale are typically used to pay off a portion of the mortgage, and the homeowner is relieved of their mortgage obligation.
Short sales can be a complex process, involving negotiations with the lender, paperwork, and potential legal implications. If you are a homeowners considering a short sale contact us now to speak with one of our experienced Realtors® with experience in handling short sales, as well as consult with a real estate attorney to ensure they understand their rights and obligations throughout the process.
