What Is A Short Sale?
Nowadays, the real estate market is booming. It’s easy to sell a home for the asking price—or even well above it. But in the past—around 2008, when the housing market tanked—many homeowners could not pay their mortgages, forcing them to go into default. Instead of foreclosure, many lenders used short sales to recoup their money.
A short sale is when a lender allows less than the amount owed to pay off a loan. The home is sold and the loan is forgiven. A short sale is used in situations when the homeowner has negative equity in the home, since the value of the home has declined.
While this situation may not happen in the near future, with home prices reaching record highs, it could happen in several years when home values level off. After all, what goes up must come down.
What is the Difference Between a Short Sale and a Foreclosure?
You may be more familiar with the term “foreclosure,” but a short sale and foreclosure are not the same thing. While both get the homeowner out of the mortgage by selling the home, the main difference is that a short sale is voluntary. The seller gets permission from the lender to sell the home at a reduced price.
A foreclosure, on the other hand, is involuntary. The lender repossesses the home from the homeowner and takes over. The lender then sells the home on its own, essentially evicting the homeowner.
Is a Short Sale a Good Idea?
Lenders are not usually keen on the idea of a short sale, since they could lose a lot of money in the process. They need to approve the process first, but once there is a buyer in place, the lender receives all the proceeds from the sale.
A short sale can be a good option for a buyer, since they are getting a home at a reduced price. Plus, in many cases, the homeowners are still living in the home up until the time it is sold, so it’s highly likely that the home is in good condition, which is not always the case with e foreclosure.
A short sale may also be preferable for a homeowner who is having trouble making mortgage payments on the home. In a foreclosure, a person’s credit score can drop significantly by 100 points or more. In a short sale, though, this does not have to be the case. If you owe a balance on the mortgage after the short sale, you may be able to convince the lender to forgive the remaining portion of the loan, which can help your credit.
Seek Legal Help
A short sale is not the preferred real estate sale method for anyone involved, but it can be better than some alternatives, such as foreclosure.
Having issues making mortgage payments? Fort Lauderdale short sale lawyer Edward J. Jennings, P.A. can advise you on the best course of action. Let us help you understand your options. Schedule a consultation today. Call 954-764-4330 or fill out the online form.