A real estate short sale takes place when the sales price is less than the amount of all the liens against the property. It is not just the original lender who may be foreclosing. It would include anyone who has place a lien on the property such as a home equity loan or line of credit loan. Here is one scenario. Let’s say Bob want to sell his house. He owes more than it is worth and he has lost his job and cannot afford to make the payments any longer. His realtor advises him he has 3 options. He can let the property go into foreclosure but this will stay on his credit record for a long time which is not a desired result. He can give his lender a deed in lieu of foreclosure but this too could negatively impact him. Finally he can try and sell his property “short”. In a short sale the Borrower/Seller receives no money.
Why would a lender sell short? Because it is costly to foreclose. In some cases it could be several thousands of dollars with attorney fees, court costs etc. Also the property still has to be sold. A short sale can be a win/win for everyone. The lender recoups more money than they would in foreclosure. The seller/borrower/owner can escape without a record of foreclosure on their credit report. The Buyer can acquire a property at a rock bottom price.
Here is a problem with short sales. They take time. If the Buyer is in a hurry & needs a property now, most likely a short sale will not meet their needs. As they say time takes time and in the case of short sales this is very true. I have a short sale transaction still trying to close after 10 months which is the extreme.
They take a long time because of the current economic climate. The lenders are swamped. What used to be done in 45 days can now take several months depending on the lender. Bank of America is the slowest. Most sales require 1 or 2 BPO’s (a Broker’s Price Opinion) and maybe an appraisal to confirm the current value of the property in today’s market. Then the investor…the institution who loaned the money in the first place needs to approve the sale as well. The investor can be a bank or a loan servicing company or any number of entities.
Patience as I stated will go a long way to keeping one’s sanity during a short sale.
Always consult an attorney with all legal concerns with this process.
The author of this article is a real estate expert. He knows the real estate market trends and has helped many people out there to buy and sell homes. He knows the fact that the real estate market will regain its shape in the near future. He has written many articles related to real estate and this one is one of the best.
