Real estate short sale is a type of transaction in which a homeowner sells his or her home for less than the amount owed on the mortgage. This type of sale is typically used when a homeowner is facing financial hardship and cannot continue to make their mortgage payments. The lender must agree to accept the lesser amount as payment in full for the loan.
When a homeowner is unable to make their mortgage payments, the lender has the right to foreclose on the home. This means the lender will take possession of the home and attempt to sell it in order to recoup the amount owed. A short sale is an alternative to foreclosure, which can have damaging effects on a homeowner's credit score.
The homeowner must take several steps to qualify for a short sale. First, the homeowner must provide proof of financial hardship, such as an involuntary job loss, illness or death. The homeowner must also submit a hardship letter to the lender, explaining why they are unable to continue making payments and why a short sale is a better solution.
The homeowner must then list the property for sale at a price below the amount owed on the loan. They must also submit a short sale package to the lender, which includes all of the necessary paperwork, such as an appraisal and a comparative market analysis.
Once the lender has reviewed the short sale package, they must decide whether to approve or deny the short sale. If the short sale is approved, the lender will agree to accept the lesser amount as payment in full for the loan. The homeowner must then close on the sale and the lender will forgive the difference between the amount owed and the amount received.
When a lender approves a short sale, the homeowner may be able to avoid foreclosure and the resulting damage to their credit score. However, the homeowner may still be required to pay taxes on the forgiven amount. Additionally, the homeowner may not be able to obtain financing for a new home for a period of time, as lenders may consider them a greater risk.
Real estate short sales can be beneficial to both homeowners and lenders. For homeowners, they offer an alternative to foreclosure and the potential to avoid damage to their credit score. For lenders, they offer an opportunity to recoup some of the money owed on the loan and avoid the costs associated with foreclosure.