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If you can no longer make your mortgage payments and
your home is now worth less than you owe on it, foreclosure may
not be your only option.
A short
sale
Short sale
A short sale, in real estate terms, is a sale of a house in which
the sale price is less than what the owner still owes on the mortgage.
It is a procedure sometimes agreed to by lenders, who often would
rather take a small loss than go through the lengthy and costly
foreclosure process. -- in which the lender allows the
sale of a home for less than it is worth and forgives the rest of
the note -- provides another alternative to homeowners.
While there are some significant negative consequences
to a short sale, an ever-increasing number of properties are being
advertised with that label, says Natalie Lohrenz, director of counseling
for Consumer Credit Counseling Service of Orange County in Santa
Ana, Calif.
"A lot of people in the last couple of years have just stretched themselves to the limit and you have people with mortgage payments where even when they got the mortgage, the payment was half their income or more," says Lohrenz. "Now that rates are adjusting, it's two-thirds or three-quarters of their income and it's just not possible."
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Short sale: Win-win-win situation |
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The beauty of short sales is that they can be a win-win-win situation for seller, buyer and lender. Here's how: |
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The
seller gets out of the mortgage liability without
facing bankruptcy. |
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The buyer gets the home at a reduced price. |
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The
lender agrees to a loss it considers minimal without
waiting through a foreclosure and being saddled with an
unsalable property. |
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While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit from the process, as well.
"The lender benefits by not having to go through
the protracted process of foreclosing on the borrower and then having
to put the property on the market and go through the whole marketing
process," says Stuart Wilson, a real estate agent with Paragon
Real Estate Group in San Francisco.
A market saturated with foreclosures can cost lenders
billions -- as much as $50,000 per foreclosure -- according to a
study released earlier this year by the Joint Economic Committee.
A buyer's dream
For a buyer, a short sale is a boon since he or she is getting a property at a reduced price. However, the process of waiting for a lender to decide whether to agree to a short sale could make a lengthy home buying process even longer and more arduous. |
