What Does It Mean When a Seller Offers a Short Sale?
A brief sale happens when a homeowner sells his home for less than he owes on the mortgage. The lender, which has to sign off on the sales contract, agrees to take the reduction –usually to avoid the often higher price of foreclosure proceedings. But if the lender doesn’t accept the brief sale deal, or takes so long to determine that the buyer cancels the deal, then the price is off. At that point, a home normally moves directly into foreclosure.
Process
In a short sale, the seller must get approval from the lender to sell the property for less than the worth of their mortgage. Apart from having a sales contract signed by a buyer, the seller must demonstrate that the sale price is at or near market value of the home he is not able to continue to make mortgage payments. If the lender participates in the national Home Affordable Foreclosure Alternative (HAFA) program, the lender streamlines the brief sale process by agreeing to stay within normal property transaction time frames and provides the vendor with its sales terms before listing. If the lender does not take part in HAFA, the review period may vary from weeks to months. A foreclosure process may run simultaneously with the brief sale. The lender’s review typically does not begin until there’s been a seller-accepted deal on the property. The seller forwards to the lender the contract along with advice on the home value and documentation demonstrating he cannot make the mortgage obligations. The lender may accept, counter or flip down the brief sale deal.
Time Frame
In a standard real estate transaction, a buyer normally gives a vendor from 12 hours to a few days to examine and react to her deal. In a short sale, the buyer additionally provides the lender with a time frame to examine and act on the contract–usually between 30 and 45 days. When some lenders meet the deadline, others do not. Although the contract expires in the conclusion of the review period, occasionally buyers wait a few weeks and even months more to listen from the lender. It is also not uncommon for the initial buyer to proceed to another property while the lender continues to consider the offer, finally coming at a price it deems acceptable. After that happens, the vendor’s broker typically notes this in the published listing so that buyers know they’re not as likely to have to wait long to get a response to future supplies.
Advantages
In a recovering market, a lender may approve of a sales cost at the same point in time and also be willing to take it months later even though market prices have risen. This is a benefit to the buyer without being a drawback to the vendor. If a lender approves a brief sale with a clause relieving the vendor from any additional mortgage obligation, the seller may rest easy that the financial institution will not come after him to get the remainder of their mortgage.
Disadvantages
Short sales in which lenders don’t take part in HAFA may take months to close. If you’re a buyer, it’s always a fantastic idea to ask your real estate agent to determine whether the lender participates in HAFA and, if not, ask if a sales price has been accepted by the lender through a previous offer.
Other Considerations
In accordance with some 2010 CNN Money report, a brief sale may negatively affect a vendor’s credit score as far as a foreclosure since in both cases a debt was not entirely reimbursed. If you’re selling your home in a brief sale, try to negotiate with your lender to have it report that the debt to credit reporting agencies as having been satisfied instead of settled.
