What is a Short Sale?
Why Short Sales?
What are the Consequences of a Short Sale?
Why Short Sale is Win-Win for the Lenders, Sellers and Buyers?
Why your Bank gets Financial Benefits by Forgiving you the shorted difference?
7 Reasons to Avoid Foreclosure
Impact on Credit - Short Sale vs. Foreclosure
Why Short Sale Fail?
The Key Differences between Short Sale and Traditional transaction
3 Phases of Foreclosure - Short Sales, Foreclosures and REOs
 What is a Short Sale?
A Short sale is when the homeowner sells their home for less than what it’s owed on their loan, and the lender accepts the amount as the payment in full. (A Short Sale is a sales transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan.)
Why Short Sales?
The Short Sale happens in Pre-Foreclosure stage. If the short sale is successful, the seller escapes foreclosure and the corresponding hit to their credit report. They only sustain smaller hit on their credit report for any missed payments and the short sale.
What are the Consequences of a Short Sale?
1) Potential IRS tax consequences associated with the debt forgiven in a short sale.
2) Deficiency Judgement: The Lender has right to pursue a summary Judgement for the deficincy. *Without help of a good attorney or a loss midigation mitigation company, this is more likely to happen.
3) Blemished Credit Record.
Why Short Sale is Win-Win for the Lender, Seller and Buyer?
For the lenders, short sale is the best solution. If the banks take the property back, they lose another 20-30%. Short sale is the real best solution for them. A Short Sale is better than No Sale!
For the homeowners, they get a chance to fresh start. A Short Sale may secure Financial Relief they need and Emotional Relief. They could buy their next home in 2 years.
For the buyers, they can buy homes lower than the market value.
Why the Banks get Financial Benefits by Forgiving the Shorted Difference?
Simple. It is Expensive for the lender to foreclosure a home. Some of the lender’s costs could include Legal fees, Insurance, Taxes, Eviction cost, Holding costs until sold, Title closing fees, Selling cost, etc. On average, it costs as high as $50,000 per foreclosed property. Their business is Loaning Not, Owning!
Seven (7) Reasons to Avoid Foreclosure
- Foreclosure follows you
- Credit score negative impact
- Ineligibility for government insured loan
- Possibility of deficiency judgments
- Negative in employment credit checks
- Potentially damaging in current employment
- Negative on security clearance
Impact on Credit - Short Sale vs. Foreclosure
Short Sales are considered preferable to foreclosures because short sale (1) lessen the impact a foreclosure can have on the surrounding community and (2) won't damage the distressed your credit as much as a foreclosure. For instance, if you are still current with other payments, a short sale may lower your credit score by as little as 50 points.
Comparing Impact of Short Sale and Foreclosure to Homeowner's Credit:
| Short Sale |
Foreclosure |
- How Short Sale is reported will affect credit score
- After Short Sale, lender can report as:
1. Paid in full - paid as agreed
2. Paid - settled
3. Paid - unrated
- If the homeowner is current with other payments, a Short Sale may only lower score by 50 points.
|
- Can lower credit score by 200 points or more
- Foreclosure remains a public record and on credit hostory for 7 years
|
Why Short Sales Fail?
There are many reasons why short sales fail, including, but not limited to the following:
- Incomplete Short Sale Package
- No reasonable chance of closing
- Inexperienced Short Sale Listing Agent
- Release of deficiency
- No Hardship
- Junior Liens
- Lender
The Key Differences between Short Sale and Traditional transaction:
- Short Sales typically have Lower Average Sales Price
- Typically, Short Sales Take Longer to Close
- More Parties maybe involved in just seller's lender
Three (3) Phases of Foreclosure - Short Sales, Foreclosures and REOs
There are 3 phases of foreclosure;
1. Short Sale : Pre-Foreclosure
2. Foreclosure : Public Auction
3. REO (Bank Owned) : Post-Foreclosure
Back to Top |
