The short-sale buying guide for today’s housing market
A 10-step primer on short sales and the steps you will need to take to purchase one… By Bobbi Dempsey of Bankrate.com –
Foreclosure is a fairly well-understood process, but as “short sale” signs sprout like weeds, you may wonder what they are all about.
When a lender agrees to accept a mortgage payoff amount that is less than what is owed in order to facilitate a sale of the property by a financially distressed owner, it’s called a short sale. The lender forgives the remaining balance of the loan.
Everyone loses — or wins
Short sales are a mixed bag for the buyer, the seller and the lender. If you’re a seller, a short sale is likely to damage your credit — but not as badly as a foreclosure. You’ll also walk away from your home without a penny from the deal, making it difficult for you to find another place to live.
The buyer gets the property at a reduced price, but the property in all likelihood has its share of problems — think fixer-upper — and will need to go through considerable red tape in order to make the deal happen.
The lender takes a financial loss, but perhaps not as large a loss as it might if it forecloses on the property.
Before you even start considering getting involved in a short sale, there are two situations in which an attempt at a short sale is almost certain to fail:
- No default on loan — Lenders almost never will accept short-sale offers or requests for short sales until the borrower is far behind in payments and a notice of default has been issued.
- Bankruptcy — If the seller has filed for bankruptcy, forget it. Few, if any, lenders will consider a short sale when the seller has filed for bankruptcy because negotiating a short sale is considered a collection activity and collection activities are prohibited in bankruptcies.