The term "short sale" sounds like it would be the answer to the prayers of both sellers and buyers; one wishing to get the home sold quickly and the other wanting to stop touring houses and get on with moving in.
Unfortunately, a short sale can be anything but. The “short” in short sale has little to do with speed, primarily due to the institutions in the middle: the banks and lenders.
A short sale occurs when a property is bought for less than the outstanding loan balance. This means getting a buyer in financial straits out from under a mortgage without undergoing foreclosure and a seller more home for less money. Naturally, the lender isn’t quite as enthusiastic about the “less money” part. The lender would like to get as much money as possible out of the deal even if it recognizes the full amount loaned is unlikely to be recovered.
Short sales generally take place once “pre-foreclosure” has occurred. The homeowner is in default but not yet evicted. After 30 days of missed payments, the borrower is considered in default of the loan contract and after 180 days the lender can file a notice of trustee’s sale in the local paper. This means the house will be up for auction. After this point, the borrower is evicted from the property. And many lenders don’t want to go to a short sale until the borrower is at least 90 days in arrears.
So what takes so much time? Both seller and buyer must deal with a multitude of interested parties, some of whose interests compete with each other. It can seem like an entire heard of lawyers, real estate agents, mortgage lenders, and bankers must all agree about a single thing: the sale of a home. But each has their own process and may either be trying to keep the loan amount down or to negotiate it upwards, depending on their focus. Banks, in particular, take their time in responding to short sales.
There are upsides to a short sale from both the seller and buyer side if you have the time and fortitude to take advantage of it.
- The borrower in default can avoid having a foreclosure on his or her record. A short sale isn’t the best thing to have on your financial record but it’s much better than the alternative.
- The seller can get more home for the price plus the home tends to be in good condition.
- Foreclosed homes, in comparison to those on short sale, still have someone living there and maintaining the property.
- There is less chance of squatters and break-ins than in foreclosed or abandoned homes.
Short sales can be a good deal for buyers and sellers. Just be aware going in that the road will not necessarily be a smooth one. For sellers, time can be against you. For would-be homebuyers, you must possess some stamina and patience.
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