What Is a Short Sale? Which Is Best For Me?

In real estate, a short sale occurs when a homeowner sells their property for less than
the outstanding mortgage balance. This is usually done to avoid foreclosure, which can
be detrimental to both the homeowner and the lender. While short sales can be a viable
option for homeowners in financial distress, they can also be complicated and time-
consuming. In this blog, we will discuss the basics of real estate short sales.

What Is a Short Sale?

A short sale is a type of real estate transaction in which the lender agrees to accept less
than the outstanding mortgage balance to satisfy the debt. This is usually done when
the homeowner is unable to make their mortgage payments and is facing foreclosure. A
short sale allows the homeowner to sell their property and avoid the negative impact of
foreclosure on their credit history.

How Does a Short Sale Work?

In a short sale, the homeowner must first obtain approval from their lender to sell the
property for less than the outstanding mortgage balance. This process can take some
time, as the lender will want to review the homeowner's financial situation and
determine whether a short sale is the best course of action.
Once the lender approves the short sale, the homeowner can list their property for sale.
The sale proceeds are used to pay off as much of the outstanding mortgage balance as
possible. In some cases, the lender may forgive the remaining balance, while in other
cases, the homeowner may be required to pay the difference.
Short sales can be complicated and may require the assistance of a real estate agent or
attorney who has experience in this area. The homeowner must also provide detailed
financial information to the lender, including income and expenses, assets, and
liabilities.

Advantages of Short Sales

One of the primary advantages of a short sale is that it allows the homeowner to avoid
foreclosure, which can have a significant negative impact on their credit history. In
addition, a short sale may be a more viable option for homeowners who are unable to
sell their property through a traditional sale due to a downturn in the local real estate
market.
Short sales may also be less damaging to the lender than foreclosure, as the lender is
able to recoup some of their losses through the sale of the property. Finally, a short sale
may allow the homeowner to negotiate with their lender to forgive any remaining
mortgage balance.

Disadvantages of Short Sales

One of the main disadvantages of a short sale is that it can be a time-consuming and
complicated process. The homeowner may be required to provide extensive financial
documentation to the lender, and the lender may take several months to approve the
short sale.

In addition, the homeowner may not receive as much money from the sale of their
property as they would in a traditional sale, as the proceeds will be used to pay off the
outstanding mortgage balance. Finally, the homeowner may be required to pay taxes on
any forgiven mortgage debt, which can be a significant financial burden.

Conclusion

Short sales can be a viable option for homeowners who are facing financial distress and
are unable to make their mortgage payments. However, they can also be complicated
and time-consuming, and may not be the best course of action for every homeowner. If
you are considering a short sale, it is important to consult with a real estate agent or
attorney who has experience in this area to determine whether a short sale is the best
option for you.