What Is a Short Sale?
Question: What is a short sale, and is it a good alternative to foreclosure?
Answer: Let’s not mince words. The foreclosure process is a brutally taxing process that will leave you stressed and your credit in tatters. Though it is sometimes the best option to resolve your financial situation, take a moment to make sure you have considered all of your options before foreclosure becomes a reality. Asking the question—What is a short sale, and is it a good alternative to foreclosure?—is a smart place to start. Indeed, short sale might be something to add to our “foreclosure fix” list.
What is a short sale?
Also known as a compromise sale, short sale is the process of selling your distressed property at a lower market value than the balance of your loan. In other words, you will sell the home for less than what you owe on the loan.
The most important consideration for a short sale is finding a qualified real estate agent with experience in today’s market. You should try to find someone who is acutely aware of market fluctuations and who is best able to serve you, whether you are in a buyer’s market or a seller’s market. Many real estate agents are better suited to one market condition or the other.
With the credit crunch affecting many people’s ability to purchase a home, you may find that your home is valued below your mortgage. In this case, you should find an agent who works with short sales. After you receive an offer, your agent can help you work with the bank to determine the terms of the short sale.
When people ask the question “What is a short sale?” they also want to know: “Will it hurt my credit?” Your credit will still be hurt by a short sale, but it will be in much better shape after a short sale compared with a foreclosure. For one, there won’t be a trail of the delinquency notices and late fees associated with a foreclosure.
In a short sale, lenders consent to permit you to accept an offer for an amount that is less than the total you owe on your loan. You will still be charged with making up the deficiency, or the difference between what you can get in the sale and your loan, but because of the sale, this amount is reduced. Not all lenders allow short sales, but the current market has increased the willingness of many banks to negotiate in this regard.
Keep in mind a few things about short sales. Like foreclosures, a short sale can be long and exhausting process. Most lenders will only sign off on a short sale if you have been sent a notice of default. In the case that you declare bankruptcy, it’s highly unlikely that a lender will agree to a short sale. Remember, though, that lenders have never experienced a market like the current one, so many hard-and-fast rules of the past are more flexible now.
If you are wondering—What is a short sale?—you might already know that you are going to lose your home. Though this is, of course, sad, a short sale might be a better alternative to foreclosure because it causes fewer credit woes and increases the likelihood that you will own another home soon.
