When a property owner is unable to make monthly mortgage payments on time, instead of going through the embarrassing process of foreclosure of declaring bankruptcy, an alternative is opting for a short sale. The amount received in such sales is less or falls short of the mortgage amount to be paid to the lender. The sale amount is paid to the lender against the outstanding loan.
Here is a look at the typical features of a short sale:
– The money received through this type of sale is less than the loan outstanding
– Lender's approval is mandatory
– The seller and lender are both involved in the process
You need special assistance to carry out a this form of a property sale. You have to consult experts who are specialized in the field can help, real estate lawyers, Loss mitigation specialists, Short sale negotiators or real estate brokers in order to buy such property.
About the Short Sale Process
Here is a look in brief on activities involved in this type of sale.
1) Convey to the lender your desire to go for short sale
2) After getting the lender's approval, submit the necessary documents
3) Sign the listing agreement that states it is a short sale. A third-party approves and a real estate agent is involved.
4) Buyers place offers on the sale which are less than the outstanding loan amount
5) The agent chooses one among the buyers and communicates it to you
6) You and your lender accept the buyer's offer
7) The buyer makes the payment, you hand over the agreement, the lender closes the deal
There are specific advantages in carrying out this type of a sale. Here is a look at what they are:
– Preventing a foreclosure and the mental trauma associated with it.
– Eligibility to buy a home, according to Fannie Mae rules, after a couple of years if the credit report reflects a late pay exceeding 60 days or immediately if the report doesn't reflect the same.
– Mortgage payments not mandatory
– Faster than a foreclosure
Short sale prerequisites
There are certain pre-requisites that must be satisfied by people wanting to buy property through this type of a sale. Here is a look at what they are:
1) The seller is facing a financial crisis or hardship like losing a job, sudden death, accident, bankruptcy, divorce, damage to a property etc.
2) The seller is either near to defaulting in making loan payments or is already defaulting!
3) The house is in a good condition in a nice locality.
4) The assets of the seller are nil or negligible.
5) It helps if the seller has more than one loan with one lender.
6) The worth of the home in this type of a sale is less than the amount outstanding to the lender.
7) The seller can prove all the above with documents whenever and wherever required.
It depends solely on the lender to grant a short sale. The approval is given most of the time, when the financial loss that the lender incurs for this type of a sale is less than the costs it will have to incur for foreclosing the property.
As someone who wishes to buy property through this form of a sale, you need to be aware of certain points. Here is a look at what you have to check out:
a. The sale price for the property as agreed by the seller and his / her lender
b. Whether or not the seller is living in the property on sale
c. Tax consequences of buying a short sale property
d. Legal issues involved
There are certain drawbacks in buying this type of a sale. Here is a look at what they are:
The buyer has to buy the house in the present condition, which might not be to the liking of the buyer
It can take a lot of time as the sale depends on a lot of factors involving the seller and the lender
Terms and conditions related to the short sale can be changed at the last moment by the lender
The closing costs might be higher
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Source by Preethi Sundar