Short Sale in Real Estate

Short sale in real estate is an opportunity to save oneself from foreclosure. Though short sale is not a favorable option in the real estate industry, people opt for it to save themselves from foreclosure. Moreover, short sale is not quite easy. Who can proceed with a short sale? Short sale is the most viable option when all other foreclosure saving methods like loan modification, forbearance etc. failed. Let us discuss some of the important facts about short sale and how to proceed with it during tough economic conditions.

What is a short sale? The simple definition for short sale can be give as ‘selling a property for proceeds lower than the mortgage balance’. If the borrower is unable to repay the secured loan, then he may carryout the short sale process with the permission of the lender. Even if the property sells for proceeds lower than the owed amount, the lender would receive it for the full satisfaction of the loan amount. In most cases, the lender may directly involve in approving the sale transaction for a specific proceeds. In a lender’s point of view, a short sale is a way to retain at least some amount of the money rather than losing it on a deteriorating property.

Now there is a question, who is the beneficiary in a short sale process? The truth is there are no big advantages or disadvantages for both borrowers and lenders. For a borrower, short sale is way to escape from the embarrassment of foreclosure. Short sales are quicker than foreclosures and borrowers can get through it in an affordable way. If the borrower was forced to face a foreclosure, the negative credit consequences are much larger than that of a short sale. Short sale can also bring some negative consequences to the borrower if he/she was awarded the deficiency judgment. Deficiency occurs if the lender refuses to accept the payment in full satisfaction of the credit.

Through short sale, a lender can lower his loss on a deteriorating property and have a chance to prevent the loan amount from staying as a bad debt. Lowering the bad debts is one of the major concerns for most banks and financial institutions. For a financial services company too many bad debts and foreclosure losses are more than enough to deteriorate their share value. Moreover, lenders need not worry about the maintenance costs, insurance costs, resale costs, eviction process and property damage if there is a short sale.

People who buy short sale property can benefit from the low price advantage in the property. A short sale buyer can choose from among the different properties available. The cost of the property is lower than what it is worth. Real estate agents use this to their advantage. There are people who buy short sale properties and sell it in the market for a higher price. This also serves to be a good business opportunity.

Though short sale process is quick and affordable, it is not very easy. Negotiating with the lienholders is quite a tedious job. It is important to note that lenders will agree for short sale only if they believe it as a loss lowering option. Otherwise, they may not favor the short sale proposal by a borrower. It is always advisable to get the help of a real estate advisor, or lawyers experienced in this field, to negotiate with the lenders. Briefly, short sale is a foreclosure preventing option for borrowers and loss reducing option for lenders.