Certified Appraisals, Inc. Blog

Short Sales
March 6th, 2012 2:23 PM

Over the past three or four years, most homeowners and real estate professioinals have become familiar with the term "foreclosure sale". But how many of us are familiar with the term "short sale"? Whereas a foreclosure means the holder of your mortgage has seized ownership of your home typically due to the homeowner not meeting the mortgage payments obligation, a short sale is slightly different.

What is typically meant by a short sale? The Dictionary of Real Estate Appraisal 5th edition refers to a short sale as "a sale of real property in which the proceeds from the sale fall short of the balance owed on a loan secured by the property."  Lenders may agree to a short sale to avoid lengthy and costly foreclosure proceedings, and borrowers who cannot meet their mortgage obligations may agree to a short sale to satisfy their debt.  Short sales do not, however, always release borrowers from their obligations to pay their deficiencies on their loans, unless agreed upon between parties. Often, a short sale may be used as an alternative to foreclosure.

Although a short sale may appear more appealing than going into foreclosure, they can be tricky. It can take 4 to 6 months before closing on a short sale due to some of the complications. Often, the lender may not accept an offer made by a buyer even if the seller accepts the offer. A short sale may fail because the bank offers the existing borrower a loan modification. Another reason for short sale failure may be due to the seller getting a job. Since short sales take such a long time, the seller may get a job during the waiting period and thus no longer qualify for the short sale. These are just a few examples of what could happen during the short sale process and why they can be so tricky.

There are some positives to doing a short sale. A lender may consider a short sale if the seller is current but the value has fallen. After a short sale, rather than foreclosure, it is easier to purchase a home again. As long as you have never fallen 30 days late on the mortgage payment and the lender does not require you to pay back the loan, the guidelines of Fannie Mae allow you to buy another home, although it may be difficult to find a lender. But it is much more difficult to buy another home after going into a foreclosure.

No homeowner wants to be confronted with losing their home. But if a homeowner is confronted with this situation there are various options to handle the potential default on a mortgage. 


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Posted by John Cordasco on March 6th, 2012 2:23 PMPost a Comment

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