What You Need to Know About Short Sales
If it seems like short sales have suddenly exploded in the real estate arena, it’s not your imagination. Once considered relatively rare, short sales have become a common phenomenon in the past 18 months, thanks in large part to the banking and mortgage crisis. To find out if you can benefit from a short sale, here’s some helpful information about the practice.
What Is a Short Sale? Short sales occur when the bank and seller agree to a purchase price for real estate that is less than the original mortgage amount and does not cover the entire cost of the existing debt obligation.
Who Benefits? Depending upon how the deal is structured, everyone can benefit from a short sale. The seller benefits from the ability to save his or her credit rating and avoid bankruptcy or face a mountain of debt, the buyer benefits from acquiring a property at below market price, and the lender benefits from a sure sale that reduces the risk of a property going to auction or of having to foot the bill for foreclosure and additional expenses.
Considerations and Consequences Short sales are not without consequences, so take time to carefully weigh all options before making a decision. Sellers need to carefully review the terms prior to signing a final contract. Some lenders expect the seller to make up the difference between the selling price and the full amount of the original mortgage.
Buyers should also proceed with caution, as many properties have additional liens, deferred maintenance, back taxes or other expensive fees that become the obligation of the buyer. Additionally, short sales may require substantial time before obtaining final approval, which can make it difficult to lock in favorable rates or result in the loss of other prospective properties.