How Does a Short Sale Work?
What is a Short Sale?
- A short sale is simply defined as the process where a holder of a mortgage note, typically a lender or bank, agrees to accept less than then amount due on the loan as payment in full. This is often done when a homeowner is behind on payments and unable to afford the mortgage any longer and they do not have enough equity in the home to sell it. Many of these homewoners have mortgaged more than the home is now worth.
Who Can Negotiate for a Short Sale?
- The homeowner, a licensed real estate agent or broker, or an attorney can negotiate for a short sale. If the homeowner is indigent, or unable to take care of his own business affairs, he may sign a power of attorney document allowing a friend or family member to negotiate for him. Many real estate brokers and agents are trained and experienced in dealing with banks and lenders for short sales. Also, if they have a buyer for the property, the lender is more apt to negotiate and work to sell the property. When negotiating for a short sale, be prepared with bank statements and letters explaining why the mortgage went into default and why the mortgage is no longer an affordable option for the homeowner.
Why Pursue a Short Sale?
- A homeowner may pursue a short sale in an effort to save his credit from a foreclosure. His credit will still be damaged, but he will not have a foreclosure on his record, making it easier in the future to buy a home again. A lender may pursue, or agree to, a short sale simply to avoid an expensive foreclosure process. It is often a better financial move for the lender to take a little less than is owed than to pay attorney's and filing fees, and making court appearances. It also does not want to take the house back unless absolutely necessary so it would not incur holding costs, maintenance costs, utility costs and other incidentals.