Short Sales

What is a Short Sale? 
A short sale is the term used when you sell your home but actually receive less for it than what you owe to your mortgage company. It is also called a pre-foreclosure sale, because this is generally the only time that this kind of sale is conducted or allowed. The ‘short sale’ term fits well because it involves being ‘short’ a certain amount of money to your mortgage company based on the sale.

As an example, if you owe $150,000 to your mortgage company and you sell your home for $120,000. You are short (or underwater) $30,000 in the sale.


Should I Short Sale My Home?
Whether to short sale your home is a serious decision that shouldn’t be taken lightly. If you absolutely must sell your home and you will owe more on your loan than you receive from the sale of the home, it is in your best interest to approach your lender about a short sale. Short sales are typically brought on by a loss of a job, medical crisis or some other difficult financial situation that requires you to relocate or puts you behind on your mortgage payments.


How Does a Short Sale Work? 
When you go through a short sale the overall process is basically the same as a standard sale. You are the seller, and you need a buyer for your home. The major difference with this kind of sale is, that either you or your representative has to negotiate with your lender to determine how much you will still have to pay back once the sale is complete. There will be a formal contract drawn up that will discuss repayment terms and final cost. There are also not state-approved real estate forms that are used for a short sale. With this kind of sale it’s always a good idea to have a real estate lawyer either, instead of, or in addition to a realtor because the forms and contracts can be confusing. Most real estate professionals don’t deal with short sales very often.


What Happens After my Short Sale? 
When your contract for sale is completed and your home has been sold, you will usually have three options – you can pay off the balance in a lump sum, you can make payments, or the lender can forgive your debt (it never hurts to ask your lender if this is an option – each one is different). There are tax issues involved with a short sale, so it’s very important to understand the impact on your personal financial situation. A short sale can negatively impact your credit score, so do your homework before you go down this route.

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