A short sale happens when a home is sold for less than the balance still owed on the mortgage. This can be a lengthy process, as it may take time to get approval from the lender. Typically, lenders would prefer the house to sell for more so that the owner can pay off the existing mortgage with the proceeds from the sale.
But there are some benefits to a short sale for everyone involved, potentially even including the lender.
An underwater mortgage
For instance, imagine that someone is underwater on their mortgage. Perhaps they took out a loan to buy a house for $300,000, but now it is only worth $200,000 due to changes in the real estate market.
A short sale is beneficial to the seller because they are able to get out of their financial obligation and sell the house. They may have been at risk of foreclosure otherwise, so selling the house can create a more positive financial future.
There are also clear benefits for the buyer. They may be able to purchase a house for less than they anticipated, and they do not have to take on the underwater mortgage that was agreed to by the previous owner.
Even for the lender, a short sale can be helpful. If the current owner is unable to keep up with payments on their underwater mortgage, the lender may have to foreclose and sell the house, which can be an even more lengthy and costly process. A short sale can be seen as a positive because the lender is able to recover what it can from the transaction and minimize its losses.
Navigating a short sale
Short sales are more complicated than traditional real estate transactions. If you are considering one from either side of the equation, you must understand what legal steps to take.
