“Short Sale” seems to be the latest buzz word throughout the housing industry, especially in South Florida. It started with some mystic that everyone heard about but did not quite understand, now it is everywhere. For everyones sake, let’s start with a definition : Short sale – occurs when the proceeds of a real estate sale fall short of the balance owed on the property. The home owner sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt.
In a short sale, the mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the Seller (mortgagor). In such instances, the lender would have the right to approve or disapprove of a proposed sale. Most Short Sales leave a deficiency balance for which the Seller is still liable. In 99% of all cases it is not a settlement-in-full.
Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower’s financial situation.
Several key factors influence the success of a short sale:
- The severity of the hardship communicated to the Lender by the Seller.
- The proximity of the offer price to the market value of the proerty (if the offer is within 10% of market value, there is a much higher acceptance rate).
- Primary residence verses a second home or investment property.
- Second mortgage or line of credit from another lender (this makes short sale approve very difficult).
- Investor holding the paper (whether the note in held in-house by the lender or a third party can determine the length of time for approve, the longer it takes for approve the greater the chance the buyer will walk away).
A short sale typically is executed to prevent a home foreclosure. Often the lender will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.
There are many pitfalls in negoiating a short sale; and such a sale is not always the best avenue for a Seller. This is why a Seller, before taking this path should consult with a knowledgeable Realtor, one who can help provide proper direction.
For more information, contact us at 561-889-2374 or email [email protected].