Understanding Short Sales - One Option to Avoid Foreclosure

Understanding Short Sales - One Option to Avoid Foreclosure

You may have heard a lot lately about the seemingly misnamed "short sale." There's a very good chance you know someone who's been through it or is going through it now. If you have been hit hard by the recession and are having trouble affording your own home, you may even be considering this option.

What is a short sale?

First, do away with any belief that it is a quick sale. It actually has nothing to do with the amount of time involved in the closing process. In fact, the process can often take three to fourth months to close.

A short sale occurs when a lender agrees to accept less than the amount owed against a home because there is no longer enough equity to sell and pay all costs of sale. In other words, if your payments are in arrears and the lender may not be able to recoup the full cost of the home, it may be its best way of getting something rather than nothing.

There's no question that this type of sale is far from an ideal outcome for anyone who owns a home; however, if you find yourself in dire straits with a foreclosure looming, it's a process which you should consider.

One reason to consider a short sale involves your financial history. Your credit will suffer with either option, but a short sale will tend to knock off significantly less points than a foreclosure; opinions differ, but it could save the loss of 100 or more points.

If you are a little behind in your payments but not so far behind that your bank has initiated foreclosure, a short sale may be the best way to protect you and your lender.

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