What Is A Short Sale

When a home is sold at short sale, the bank agrees to accept less than the face value of the loan

. Often times, the owners are behind on their payments and may end up in foreclosure. Faced with even more losses if the property goes into foreclosure, the bank may agree to accept a lesser amount. Once the bank is involved, the new owner is actually buying the home from the bank.

Why banks accept short sales

Foreclosure rates are temporarily down a bit, perhaps because banks are taking longer to process them-up to 400 days nationwide. As a result, fewer bank-owned homes are coming on the market. Banks are reluctant to add to their inventory, as homeownership is a burden for them. In areas with many vacant bank owned homes, vandalism and deterioration due to lack of use decrease the value. As a result, banks may be willing to talk about a short sale on a property likely to make to foreclosure court.

In addition, the bank may accept a short sale to close out a bad loan on its books. If they can sell the property, they can recoup more of their losses than if they foreclosed on the home and had to auction it off.

Why use short sale?

For homeowners who want to avoid foreclosure, short sale has many advantages. Foreclosure is a humiliating process that forces you from your home on the lender's term and damages you credit for years. With a short sale, you may still have to give up the home, but you have more control over the timing. Short sale harms your credit but is less damaging than foreclosure.

On April 5, 2011, both homes and banks were offered incentives to use the short sale process. Under a provision of the Making Home Affordable program, homeowners can qualify for relocation assistance of $1,500, while the primary lender gets $1,000, junior lien holder get $1,000, and second mortgage lender get $1,000.

Given the current delays in processing foreclosures, troubled homeowners have more time to either catch up the loan or pursue short sale. Those who have lost jobs or had some temporary financial setback that put them behind may be able to get current. For others, who see no immediate end to their financial difficulties or who bought more house that they could afford, the elongated processing time allows them to pursue a short sale.

Another alternative to foreclosure

Selling your home to a company that buys houses can be an ideal solution if you know you need to leave the home and want to do it soon. Short sales are notorious for taking a long time, but a homebuying company can take ownership quickly, often within seven days from when you get their signed offer.

by: Brad Chandler

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