What is a Short Sale?
Short sales haven’t been very common since the real estate market has recovered after its crash in 2008. However, they are still an option for financially distressed homeowners who are facing foreclosure. We could start seeing more short sales and foreclosures in the wake of the Covid-19 pandemic that has been tough on many homeowners.
So, what exactly is a short sale? How is a short sale different from a foreclosure? Is a short sale a good option for you? Are there other alternatives to consider? Let’s look at each of these questions individually.
What is a Short Sale?
A short sale happens through an agreement with the lender (bank) and the homeowner. Typically, the homeowner must show they are in financial distress and the house is worth less than they still owe on the mortgage loan. The lender agrees to sell the house at a lower-than-market-value price. The lender takes all the proceeds of the sale and the seller gets out from under the financial burden. Short sale agreements can vary based on the homeowner’s situation and how “upside-down” they are on the mortgage. The bank may work out a deal with the seller to repay some or all of the difference between the selling price and what is still owed on the mortgage. This is known as a “deficiency judgment.” Or, they may agree to forgive what the seller owes.
Short Sale vs. Foreclosure—What’s the Difference?
Neither short sales or foreclosures are good things for homeowners, but a short sale is less damaging to your credit rating and some homeowners may even be able to buy another new home right away. A short sale is a voluntary agreement. The seller seeks the lender’s approval to sell the house for less than it’s worth. A foreclosure is involuntary. It is a legal action taken by the bank to seize the house from a delinquent borrower who is significantly behind on mortgage payments. A foreclosure is very damaging to the homeowners credit and it may be awhile before they can get another mortgage loan. A short sale potentially offers a way out that’s still not great, but certainly better than going through a foreclosure.
Is a Short Sale a Good Option for Me?
This really depends on your financial situation, your mortgage debt, your home’s current value and a variety of other factors. You should do everything you can to avoid foreclosure. If that seems inevitable, then a short sale may be your “better than foreclosure” option. Still, you should also work to avoid a short sale situation if you can. If you are behind on mortgage payments and/or upside-down on your mortgage, you may have other options to sell or lease your home before you get to the point of having to ask for a short sale or getting foreclosed upon.
The good news is that not as many homeowners are upside-down (or “underwater,” if you prefer) on their mortgages in 2021. The real estate market has been strong in recent years and home prices have risen steadily throughout the country. Even if you are behind on your payments, there is still a chance you may not be underwater on your loan—or at least not significantly enough to settle for a short sale. If you have dipped into your home equity or taken out multiple mortgage loans to get by, then you might be upside-down.
Is a short sale a good option? If all of your other options are exhausted and foreclosure is inevitable, then yes, you should consider it. If you have another opportunity to sell your house before a short sale or foreclosure, then you should explore your home selling options as soon as possible. Basically, a short sale is better than a foreclosure, but it’s still not something you want to happen if you can proactively avoid it.
What Are the Alternatives to a Short Sale?
If the lender is already threatening foreclosure, your options may be more limited. If you aren’t yet to that point where pre-foreclosure notices have started to come in the mail, then you should have more options. You might be able to sell your house for cash or on the open market. You might be able to work out a creative seller financing deal with a real estate investor. The point is you might have more options than you think. You simply have to know your situation and be proactive about finding the best solution.
PropertyLark is here to help. We provide many different solutions to selling your house. Our team can help you decide what is right for you and get you out from under the financial burden of your home before you get to the point where a short sale or foreclosure might be your only options. Please contact us today. Provide us a little information about you and your house to get started.