Short Sales On Real Estate

Short sales are sales on real estate property in situations where the proceeds from

the sale are less than the balance owed on the bank loan of the property. It happens when the borrower can't pay on a particular home loan and the bank decides that it is better to sell the home at a loss rather than fight with the debtor. It avoids the issue of foreclosure, which can be costly to the bank and can wreck the credit report of the person who has the loan.

In short sales, the bank decides to discount the loan of the borrower because they are in an economic hardship of some kind. The borrower then agrees to hand over whatever profit is received from the sale of the property to the lender. The idea of short sales is that they are the most economically profitable to both parties. The borrower gets to keep his or her credit report at the same level and the bank gets some money back on its investment, even if it is not the whole sum. It saves the bank money and hassle and saves the borrower the same.

Short sales tend to go faster than regular sales so that the process is quickly over with. This prevents more money being wasted on both sides of the issue and the financial loss to the bank is much less than it would have, should a foreclosure occur. Banks have special departments for short sales called "loss mitigation departments". These people make evaluations of each situation and decide whether a short sale should occur or not. Usually, they have strict criteria that they follow but sometimes they take a chance on someone and offer them a short sale per their request. The bank then gets an appraisal of the property and determines the amount of equity currently in the property.

Because of the overwhelming losses incurred by mortgage holders during the 2009 foreclosure crisis, banks were willing to accept almost any offer for a short sale as opposed to having a foreclosure. This helps those customers who were considered "under-water" because they owed more on the house than the house was actually worth. Such an individual would otherwise go straight to foreclosure rather than having short sales.

You need to have approval on many levels in order to have short sales. You need the approval of the primary lender and the secondary lenders (that gave out second mortgages). You need the approval of HELOC lenders as well as those who have special assessment liens against the property. Tax agencies also need to give their approval. Mortgage insurance agencies may be required to pay out a sum of money toward the balance of the mortgage. Because there are so many variables in short sales, many of them do not go forward and go to foreclosure instead.

The difference between a short sale and a foreclosure is the way the interaction is handled. A borrower and the lender both must agree to a short sale before it can take place. A foreclosure, on the other hand, is one sided and is forced upon the borrower by the lender. Clearly, short sales are preferable to both parties.

by: Gary Hall

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