Mortgage Short Sale
A financially distressed homeowner sells their property to a third-party buyer for an amount less than what is due on the mortgage.
Mortgage Short Sale Details
It is advisable to understand the lender's perspective to determine how likely the lender will want to work with you on a short sale. A short sale is allowed at the lender's discretion since the lender is not required to make a short sale. The financial trouble source should be disclosed when you initially apply for the loan. The lender might not work with you if you are not yet in default on your mortgage payments.
Lenders won't go for a short sale if they are confident that they can make more money from foreclosing than from allowing a short sale. Finally, if somebody else cosigned the mortgage, the lender holds that person responsible for the loan payment rather than making a short sale. The lender may also decide to forgive the difference or take legal action against the borrower to pay all or part of this difference.
It is best to talk to the lender's loss mitigation department at the bank about the possibility of engaging in a short sale if you think your situation is ripe for it. You may not like what the first decision-maker decides; therefore, you should try talking to another lender to see if you will get a different response. If the lender agrees to consider your short sale, you are ready to create the short-sale proposal and find a buyer.
Example of a Mortgage Short Sale
Mortgage short sale refers to the fact that a home is being sold for less than the balance remaining on the mortgage. For example, a person may be selling a home for $100,000 while still having a remaining mortgage of $150,000. In this example, the difference of $50,000, minus closing costs, and other selling costs is considered the deficiency, i.e., $100,000 - $150,000 = -$50,000.
The lender ought to sign off on the decision to carry out a short sale before the process begins. Besides, the lender needs documentation explaining why the short sale makes sense not to lose any money in the process. A short sale won't occur without the lender approving it first. Typically, short sales are lengthy and involve paperwork transactions, sometimes taking up to a full year to process.
Significance of Mortgage Short Sales
Avoiding Foreclosure: Indeed, homeowners will turn to short sales to avoid losing their homes to foreclosure. You can list your home at a lower short sale price to sell it faster if you find it hard to make your mortgage payments. Missing mortgage payments damages your credit score leaving a black mark on your credit report for seven years if you lose your home to foreclosure.
Lower Price: Listing your home for a lower price is the benefit of a short sale since it attracts a more significant number of buyers. In a short sale, you can list your home for a price under what you owe so that many buyers will have a chance to bid on your home. This helps you in selling your home faster in case you need to vacate urgently.
Mortgage Short Sales vs. Foreclosures
A mortgage short sale and a foreclosure are available to homeowners who are behind on their mortgage payments, who have an underwater home, or both. In both cases, the homeowner is forced to part with the house at different timelines and consequences. A foreclosure is the lender's last option whereby the lender seizes a home following the borrower's failure to make payments.
Foreclosures are initiated by lenders only, unlike short sales. The lender takes action against a delinquent borrower to force a home's sale, aiming to make good on its initial mortgage investment. Many foreclosures occur when the homeowner has abandoned the home. If the home occupants are still in the home, the lender banishes them in the foreclosure process. After the lender accesses the home, it orders an assessment and then proceeds to sell the home.
Much different from short sales, in foreclosures, the lender is concerned with liquidating the asset quickly; thus, they take a little time to complete. These foreclosed homes can also be auctioned off at a trustee sale. If you go through a short sale with certain restrictions, you may be eligible to purchase another home immediately. However, if you experience a foreclosure, you will have to wait two to seven years to buy another home since the foreclosure stays on your credit report for seven years.