Considering a Short Sale as an Alternative to Foreclosure

Property short sales are a real estate maneuver that can protect a home owner from some of the consequences of outright foreclosure. The “short” in short sale is the value of the home loan that is not paid off through the sale making it a short on funds sale or closeout special. For a short sale to be accomplished, a homeowner’s mortgage lender must approve the short sale which can make things complicated since they are likely to not profit from the deal. Short sales are difficult to arrange per Total Real Estate; this obstacle stems from the financial loss lender’s are less likely to be enthusiastic about.

How to short sale

To accomplish a short sale a homeowner must obtain a buyer with cash or pre-approval from a financial institutions. Pre-approval is a written guarantee if loan from a lender for a certain amount of money and is different from pre-qualification which is simply an acceptance to consider an application for financing.

Additionally, once a funded buyer has been found, the bid offer for the home must be presented to the existing mortgage lender(s) for consideration. This process may involve multiple lenders in the case of 2nd and 3rd mortgages and has the potential to become complex.

Benefits of short sales

Accomplishing a short sale may be difficult to achieve but can also be worth the extra effort because it is less damaging to one’s credit, and more helpful to future mortgage applications than a foreclosure. Some of the benefits of short sales are also advantageous to home buyers. A summary of the advantages of short sales of homes is provided below:

• Helps protects home owner from complete foreclosure and/or bankruptcy
• Allows the lender to quickly negotiate a settlement
• Can be a bargain for the buyer
• Provides an intermediate solution to an otherwise potentially damaging situation

Disadvantages of short sales

Short sales are not all perfect, expedient and easy transaction that can be accomplished overnight. Due to the involvement or Realtors and or brokers, financial institutions, city filing requirements, legal considerations etc, real estate deals of any kind can be complicated. Short sales tend to complicate real estate transactions more than simplify them. A few of the disadvantages of short selling property are listed as follows:

• Extensive paperwork requirements
• Negative affect on credit rating
• Loss of equity in home
• Unfavorable scenario for original mortgage lenders
• Property tax will still be payable

Tips to consider when short selling

As with any property deal, it can be a good idea to be prepared, informed and capable of carrying out the necessary steps to close a deal in as quick a time as possible, for as best a deal as possible. Following a checklist like the one below or the one at How To Do Things can help simplify and clarify the process. For these reasons, several considerations are provided below in the form of “tips” to assist a short seller in accomplishing and/or familiarizing with the process so in the even a short sale is required, the reader may be more informed as to what to do.

Sale amount: Short Sale for an amount greater than market value but lower than the mortgage value.

Closing and Settlement Fees: Negotiate closing and settlement fees into the cost of the short sale and/or the buyers contract if possible.

Research: Know the consequences of the short sale in terms of cash flow, credit record, and tax implications. Also become thoroughly familiar with the process before undertaking a short sale.

Study: Studying the neighborhood of potential homes, the conditions of the homes, the market prices of homes in that neighborhood and the foreclosure statistics can all help determine whether or not a property is worth short selling.

Communication: Contacting homeowners who can’t afford to keep their home and their banks can be a good prerequisite in determining the chances of the short sale not falling through. Making it clear to a mortgage lender that the short-sale is in their best interest, and being persistent enough to carry through with it can be a good idea based on short-sale advantages described by Dwan Bent-Twyford of CRE Online Inc.

City and/or County Taxes: Some mortgages have taxes built into the monthly payments, in such cases one may have to do very little in the case of taxes. However, if this is not the case, contact the city or county for tax due can assist in knowing how much money will be needed to successfully close a short sale.

Short sales are like mortgage parachutes that may or may not open depending on the buyer financing, lender amenability to the short sale, proving inability to pay a mortgage and successful negotiation with involved parties. The winners in a short sale are more likely to be the buyers and brokers who may either obtain a discounted home or a commission on the loss of a property. Short sells are similar to foreclosure sales in the sense they are the purchasing of homes that are not able to be lived in by tenants. However, short sales are kind of a step ahead in the sense they purchase the home before the foreclosure process rather than after.