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Key Takeaways A short sale in real estate is one in which a house is sold for a price that is less than the amount still owed on the mortgage. It is up to the mortgage lender to approve a short sale. The difference between the sale price and the mortgage amount may be forgiven by the lender, but not always. The financial consequences of a short sale are less severe for the seller than those of a foreclosure.
It's important for the buyer to calculate costs and be sure there is room for profit when the house is resold. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
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What Is a Short Sale? Follow these two steps if you think you might need to do a short sale. Be prepared to provide a strong reason why you should be considered for a short sale. The lender could request a property appraisal to confirm the value before deciding whether to approve your request.
You will need to determine how to deal with the difference between the value of your home and the mortgage loan, known as a deficiency. Consulting with experts. A real estate lawyer and a real estate agent familiar with short sales can help ensure the process goes smoothly.
Short Sale vs. Foreclosure A short sale is likely the better short-term and long-term option for both you and your lender. Both you and the lender would likely save money in a short sale versus a foreclosure, which would require you and the lender to go to court in most states. In order for a short sale to take place, both the lender and the homeowner have to be willing to sell the house at a loss.
The homeowner will make no profit, and the lender will actually lose money for selling the house for less than the amount owed. A short sale is not a do-it-yourself deal. Deciding if a short sale property is right for you depends on your specific situation and the details of the property. One thing is certain, though: If you want to buy a short sale property, in most cases you need to be prepared for a lengthy, complicated process.
Because the lender has to approve the short sale contract, it can take weeks or months before you know if your offer has even been accepted. A seller might be ready to accept an offer lower than the list price—maybe for the ideal closing situation or because they have a rushed timeline.
Before you consider buying a short sale home, you need to talk to a real estate agent who has experience with the short sale process. Need help finding an expert? Our Endorsed Local Provider program can help you find top-rated real estate agents in your area. As you interview them to find the best fit for you, make sure to ask about their experience with short sales.
With the right real estate agent, you can navigate the short sale process with confidence! Find an agent! Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since Millions of people have used our financial advice through 22 books including 12 national bestsellers published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
Guided Plans. Unfortunately, there are a number of misconceptions and myths about short sales that dissuade homeowners from seeking that protection or mislead them into working with a non-attorney real estate agent. Short sales actually bring the bank more money than they would receive in the foreclosure process. This myth that the bank would rather foreclose remains prevalent because of the extreme difficulty people face during the loan modification process.
Those people assume the bank is playing games just to get to the foreclosure. Most people believe the bank would prefer to go through foreclosure because the bank is giving them such a hard time on the loan mod.
Once that same homeowner switches to the short sale, the bank becomes more agreeable and will assist them in avoiding the foreclosure. The perception held by homeowners is that those transactions were doomed because of the bank. In reality, it was the failure of the real estate agents and their limited tool set that led to the foreclosure rather than a successful short sale.
Please see the resources on our website www. While this might be an unavoidable situation if your loan is unaffordable, there is no requirement that you be in default to complete a short sale. We have completed a number of short sales in Southern California where the homeowner remains current on the mortgage.
Additionally, you need the assistance of an attorney in presenting your situation in the hardship letter. Lawyers Realty Group can deploy the force of law to push the foreclosure date out and gain the cooperation of the bank. Nevertheless, we advise that the homeowner reach out to us as soon as possible so we can get started right away.
Once commenced, the process is very slow but the foreclosure date will be postponed as long as the bank sees that we are working in good faith toward the short sale solution. For the most part, there is truth to this statement if you are using a traditional real estate agent.
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