Archive for the ‘Buying a Short Sale home’ Category

Understanding Exactly What Is A Short Sale?

Tuesday, August 3rd, 2010

A short sale occurs when a lien holder for the property agrees to a reduction in the property lien or loan to progress a real estate sale. A potential buyer of this property has the opportunity to purchase the property at a reduced sum. A short sale of a property is an alternative to allowing a homeowners property to be foreclosed.

How Does a Short Sale Work?

Just because your home has fallen in value since you bought it and you feel it is a waste of money to pay for a declining asset does not qualify you for a short sale. In order for the borrower to be eligible for an approval from the lender for a short sale, there has to be a financial hardship. Likewise, foreclosure on the property appears likely. When a borrower has enough assets to pay the mortgage, a lender is not going to accept a short sale. Once all paperwork has been submitted and it has been determined that the borrower can qualify for a short sale then the property is listed for sale to potential buyers. A prospective buyer can submit bids to the property owner for the purchase of the property. Typically these offers from the prospective buyers will be lower than the fair market value of the property. The borrower then decides to accept an offer on his property or not. Any offers the borrower approves are then submitted to the lender for acceptance. At this stage, the lender reviews the hardship of the borrower, reviews the borrower’s financial documents and determines acceptance of the amount derived from the sale of the property. Keep in mind that the mortgage lender is not approving the sale of the house. The lender is only acknowledging that the receipt from the property sale will be applied to settle the outstanding mortgage on the property.  explains this in detail.

What are the Consequences of a Short Sale for th Borrower?

There is no doubt an impact on the borrower. For a while the borrower will have a financial impact from the release of the encumbered home loan. However, the penalties of having the property foreclosed are far more severe.

Some of the more pertinent effects of a short sale on a borrower are:

1. An impact on a credit score of about 80 to 100 points

2. A 2 year wait before a borrower can obtain another mortgage

3. A possible deficiency judgment from the lender although this can usually be negotiated away with a professional negotiator.

4. Tax consequences for an investor property. Primary residences are exempt for debt forgiveness.

Does It Makes Sense for a Bank to Accept a Short Sale?

Foreclosure is the last resort to the bank. Mortgage lenders are not happy holding a property since this is not their business forte. The act of foreclosing on a home places a burden on the financial resources of any lender. It can cost up to $30,000 for a lender to foreclose. If the property becomes an REO for the lender then cash reserves are required to be put aside for up to 6 times the value of the REO. This restricts the use of these monies, not allowing for better investments. One of the first jobs of an REO Officer is to liquidate properties acquired by foreclosure. See the short sale button on for details.  Therefore, it is truly in the best interest of the lender to work out a short sale where permitted as opposed to going thru the foreclosure process.

What are some negative points in a short sale purchase of homes

Short sales can often take much longer for approval than a regular home sale. This is due to the third party approval for acceptance of the pay off amount. In the long run the buyer can benefit, but the buyer must be aware that this short sale process can be approval lengthy. Other problems can accompany the short sale purchase. – Even with short sale approved properties, banks and lenders can still reject offers from buyers.  Some of these causes could be buyer qualification, appraised value showing a large variance between offer price and appraised value, etc.  Having an educated agent help buyers with the short sale process is important to make the transaction move forward toward a purchase.  You can get more information about short sales from .

 

 

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