 | Robert Cobb is Managing Broker/Owner of CENTURY 21 Cobb Realty in Pittsburg, KS. He is a life-long resident of Pittsburg and a PSU graduate with a BS in Business Administration. He has been in the real estate field for 23 years. He is currently a KAR Director and the President of the Pittsburg Board of Realtors. |
Real Estate
2011-05-01 10:46:00
What is a short sale?
Question: What exactly is a short sale and what are the reasons one would choose a short sale?
Answer: Short sales are generally not the first choice of any homeowner but they do serve a useful purpose and can help a homeowner maintain good credit.
A short sale is a sale where the seller’s lender agrees to allow the home to be sold for less than the owner currently owes on the loan. The goal of a short sale is to help the homeowner avoid foreclosure if for some reason they can no longer remain current on the payments and stay in the home.
In many cases, the lender agrees to forgive or work out an arrangement for the balance of the loan. Ultimately, the seller avoids foreclosure, the buyer gets a home at discount and the lender avoids having an excess number of homes to sell.
Not everyone is eligible and not every home needs to be in default in order to qualify. Generally, if a home is in danger of foreclosure due to such things as loss of job, divorce, or serious illness the homeowner may be eligible for a short sale. Additionally, if you owe more than the home is worth or are unable to modify your current home loan, a short sale is likely eligible.
While the short sale is preferable to foreclosure, there are still some disadvantages. A short sale will certainly impact your credit, though not as dramatically as a foreclosure.
On the buyer’s side, purchasing a short sale may be more involved than expected. Contrary to popular belief, a short sale is not necessarily a quick process. It is also important to know if there is more than one lender, in which case there must be some agreement between the lenders. The first loan is protected by the second lender, unless the second does not want to foreclose. If for example, the owner owes $200,000 to the first lender, and $50,000 to the second, an offer at $200,000 would leave nothing for the second lender. This means the first lender would need to make an agreement with the second lender in order for both mortgages to be released and for the short sale to proceed.
There are many cases where selling or buying a short sale is very advantages. However, the process is not always as simple as you might expect, so working with a RE profession experienced in short sales is recommended.
