Short Sales
We hear a lot these days, about “Short Sales”. What is a short sale and who qualifies for one?
If a Seller sells his mortgaged property and the proceeds of the sale will not pay off the property’s loan(s), he will need to either “bring money” to the closing or arrange, before the property goes under contract, for a short sale. In essence, a lender will agree to “short” its proceeds from a sale and take less than what is owed on the loan. Short sales are meant to help a borrower that has no or little savings, lost a job or has catastrophic circumstances (such as health or medical issues) that will not allow the borrower to pay off the loan in its entirety.
Before agreeing to a short sale, the lender will require that the borrower show that he does not have the funds to pay off the loan(s). This process resembles a reverse of getting a mortgage; in other words, it’s like showing the lender why the borrower can not pay. A seller should seek his lender’s permission before pricing, and placing under contract, his property. If not, the seller could be in default of a contract, by not being able to close and deliver clear title to the buyer.
Many lenders will agree to a short sale based on simple arithmetic: it will probably cost less if the lender accepts a short sale rather than forcing a foreclosure. Banks don’t like short sales, but who can blame them? In short sales, the lender loses money or gets a lesser return. Most lenders limit short sales to primary residences.
Short sales are not meant to help borrowers that have sufficient income or savings to pay off the loan(s). Many borrowers think that they can ‘declare’ a short sale, without the lender’s permission, because the property has depreciated in price. This is incorrect. If a borrower has savings or a 401K, the lender will probably say “no” and pursue the borrower for the remainder of the loan(s).
In most cases, a borrower’s credit will be damaged with a short sale, but it will not be as badly hurt as it will be in a foreclosure. Within a few years, most short sales’ borrowers can get credit, but foreclosed-upon borrowers will find it more difficult and will need to wait longer to buy another home.
Looking for an Atlanta home? If you are interesting in buying or selling a short-sale home in Atlanta, call us. Experience True Experience!