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 refusal of the lien holder to accomodate a short sale could likely result in foreclosure.

How Does a Short Sale Work?

There are a number of homes that might seem to qualify for a short sale. A lender will only approve a short sale if only a true financial hardship is in existence. In addition, foreclosure of the property seems to the next step as a result. If a borrower has sufficient assets to pay for his/her mortgage, then a lender will not likely approve 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. Now the property owner can accept bids to purchase the property. These bids will usually be less than the fair market value of the encumbered property. If the borrower approves the purchase offer, then the offer is forwarded to the mortgage lender. A review will be conducted by the lender of the borrower’s hardship qualifications. A review of the borrower’s financial information is performed. A short sale determination will be made for loan reduction acceptance. 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.  Realty Gainesville explains this in detail.

Will the Borrower be Affected by the Short Sale?

The borrower will be affected by the short sale no doubt. With the short sale comes the penalties that will have an effect on the borrower. Foreclosure of the home would carry heavier consequences than a short sale.

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?

Mortgage lenders want to avoid foreclosures. Property holding is not what they are good at so short sales are a better alternative. A lender is apprehensive of a foreclosure because of the financial limitation placed on its assets. It can cost up to $30,000 for a lender to foreclose. If the property becomes bank owned or an REO, then up to 6 times the value of the REO  has to be held in cash reserves. 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 Gainesville Fl Homes 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.

Understanding the Possible Problems With a Short Sale

Routinely short sales are much slower being approved as compared to regular sales. The lender needs to approve the offered sum for debt liquidation and this can be a long process. While the results may be beneficial to the potential buyer, patience is needed in a short sale transaction.What can go wrong with a buyer purchasing a Short Sale? – 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 Homes in Gainesville.

 

 

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