Both short sales and foreclosures can cause headaches so read until the end to find a quicker and easier option.
What is a short sale?
A short sale is the sale of a real estate property where the lender is willing to accept less than the amount still owed on the mortgage.
If it walks like a short sale
You can recognize a short sale when:
- The homeowner is beyond the point of no return on payments.
- The housing market has declined to the point that the house is worth less than the remaining balance on the mortgage.
It’s all part of the process
How does the short sale process work?
The short sale of a house is an extremely long and complicated process; it’s a miracle if the process is completed in a month.
Is it worth all the extra effort?
That depends on your predicament.
In most cases, the lender (and the homeowner) will try a short sale process in order to avoid foreclosure.
There are numerous myths about short sales. For example, that lenders just want to get the property off their hands and quickly try to get as much money back as possible.
However, the lender will painstakingly try to recover as much of their loss as humanly possible. Just because a property is listed as a short sale does not mean the lender must accept an offer, even if the seller accepts it.
This is why the short sale process is so arduous.
In a short sale, the homeowner initiates the sale of their house. Potential buyers deal with the home sellers during the short sale, but the lender must review and approve every move throughout the whole process. The short sale cannot take place unless the lender approves. The lender has the last word on everything so the short sale process is impossible to predict and can take forever, even if the homeowner and potential buyer agree.
What is a foreclosure?
In foreclosures, the bank becomes the owner of the home after the buyer can no longer make the payments. The lender initiates this process and forces the sale of the home to recover as much of the original loan as possible.
Foreclosed homes have usually been deserted, but if the homeowners are still living there, the lender will evict them and then try to sell the property through either an auction or a real estate agent.
The foreclosure process is usually quicker than a short sale because the lender seeks to liquidate the home ASAP.
Which is the lesser of these two evils?
For homeowners, a short sale is preferable because:
- A short sale is freely chosen whereas a foreclosure is imposed.
- After a foreclosure, usually, people must wait a standard seven years before being granted another mortgage loan while with a short sale the wait is two years (minimum).
Lenders usually prefer a short sale over a foreclosure because they can get back as much of the original loan without a long and pricy legal process. Frequently, a homeowner and lender only initiate foreclosure after trying to sell the home via a short sale process.
Why do homeowners choose short sales?
If a homeowner is thinking about a short sale then you know things have gone to the dogs. A short sale means that they will lose their home without a profit. And that’s not the end of it, they must also put up with the potentially traumatic experience of persuading the lender to let them do it. Selling a house through the short sale process shouldn’t be wished on your worst enemy but it’s the only way that a homeowner can avoid foreclosure.
Throughout this process, the homeowner’s priority is to persuade the lender to initiate a short sale.
To do this the homeowner has to:
- Corroborate that the local housing market value has plummeted so much that the home won’t sell for enough money to pay back the mortgage.
- Prove they can’t pay back the mortgage and that they have no assets (such as cash, savings, cars).
- Ensure that the short sale agreement includes a waiver of the lender’s right to go after the homeowner so as to receive the outstanding amount on the loan balance.
- Give the lenders a signed contract with a buyer before a short sale is considered.
A short sale can only occur when both the lender and homeowner want to sell the house at a loss. The homeowner won’t make any profit, and even the lender will lose money for selling the house for less than the amount owed to them.
Don’t try to DIY
A short sale is difficult so don’t try it at home alone (so to speak). Expensive experts are needed, such as experienced real estate agents.
They, however, will obviously set you back more than a small fortune in commission (at least 6%).
Therefore, you may wish to consider a third option, where you can sell a house quickly and easily for cash.
Seek a Quick N Easy Offer to save not only time and money but also to avoid all manner of headaches.
