If you are looking at buying a home, you may have heard good and bad things about buying a short sale. If you are a current homeowner, and you are behind on your mortgage payments, your lender may have mentioned selling your home in a short sale. So, what is a short sale?
A short sale is simply selling a house for less money than is owed on the mortgage, with the lender’s approval, and that smaller amount removes the lien on the mortgage. For example, let’s say a homeowner owes $150,000 on their home and is behind on their mortgage payments. Before they go into foreclosure, they want to sell the house, but their best offer is only $135,000. The offer is sent to the lender to determine if they will be willing to accept that amount.
Selling Your Home in a Short Sale
While it is not an optimal situation, a short sale can give you more control in your living circumstances and save you the stress and drawn-out process of a foreclosure. If you are facing financial difficulties, and you are concerned you are facing foreclosure; you can talk to your lender about a short sale.
If you have proof of financial hardship, a detailed appraisal of the house showing why it will not sell for the outstanding mortgage amount, and a buyer ready with an offer, the lender can approve the short sale. The downsides to this process are that the lender can send you to collections for the outstanding mortgage amount and you may owe plus additional taxes. It’s a good idea to speak to an attorney before you start the short sale process to learn more about your rights and options.
Buying a Short Sale Property
A short sale can be a great option for you to get a great house at a lower-than-market value price with a great interest rate. However, the process of buying a short sale is often more complicated than a traditional sale. The biggest drawback is the time involved in the process.
First, your real estate agent will need to determine what mortgages and liens are on the property. Once that has been determined, your offer will need to be approved by the lender, not the homeowner. This process can take a few months or more, and it’s not guaranteed that they will accept the offer.
The other caveat to purchasing a short sale is the condition of the house. If the homeowner is behind on the mortgage, chances are he or she is not keeping up with repairs to the property. Often, the lender will include an “as-is” clause in the property, meaning they will not make any repairs or updates. This does not mean you shouldn’t get an inspection because you can still walk away from the purchase depending on the extent of any damage.
A short sale can be complicated, and there are benefits and drawbacks for both buyers and sellers. However, an experienced real estate agent can help you navigate and understand the process more easily. In many cases, both the seller and buyer will end up with a positive outcome.