What is a Short Sale?

If you are thinking of buying a home and come across one you love and you discover it is a short sale; if you don’t already know what a short sale is your first reaction is to ask, what is a short sale? Simply put, a short sale is a property that sells for less than the balance that is owed on the mortgage. A short sale can be on any type of property including an apartment building or even vacant land. If there is a mortgage balance that is greater than the market value of the home, the property is a short sale.

Although short sales are normally not a common practice, they have surged in popularity as a result of the latest mortgage crisis. They are typically reserved for extreme cases when the bank or lender decides that its in their best interest to take an early loss instead of enduring costly foreclosure proceedings. Nowadays, with home prices moving sideways or dropping, homeowners aren’t so lucky. That’s why borrowers who got into negative amortization loans or high loan-to-value loans are finding themselves with a mortgage balance that exceeds the value of their home. It is unfortunate to have a home loan underwater and so a short sale just may be the answer.

A short sale is often used as an alternative to foreclosure as well, because it mitigates additional fees and costs to both the creditor and borrower. Both often result in a negative credit report against the property owner.

If you are thinking of buying a property that is classified as a short sale there are a couple of things to consider. With a short sale the bank does not own the property however, because the bank must approve the sale it will see like the buyer is purchasing the property from the bank. Short sale transactions can be much more time-consuming and may test your patience. You may be waiting for your dream home for up to six months.

One of the other downfalls to purchasing a short sale property is it is usually written up “as-is”. So you need to be sure to write in the contract that if the inspection should show too many things wrong with the property that you are in fact able to back out of the deal. You should not expect the bank to lower the price to cover any repairs that are needed, this will need to be covered by you.


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