Short Sale Option vs. Foreclosure
Definition of a Short Sale: The lender agrees to accept less money than is currently owed under the terms of the promissory note (promise to pay) signed by the borrower. The money to satisfy the lender is derived from a sale of the home for a price less than the loan balance. Typically, this is an effective way to dispose of the property where its value is far exceeded by the amount owed and is not likely to appreciate in value sufficient to satisfy the borrower’s total obligation in the near future. It may seem simple, but the details determine how attractive an option this may be.
Short sales are an alternative option to foreclosure or bankruptcy. The process of a short sale is similar to that of a modification. To begin the process, the same documentation as a modification proposal is required to be provided to the lender, including a hardship. In addition, an executed purchase agreement with a prospective buyer and a listing agreement are also required. An experienced short sale real estate agent is necessary for the sale of the property. In this particular situation it cannot be “For Sale by Owner”. The lender will review the documentation as well as the offer presented from the potential buyer. A BPO, similar to an appraisal, will be conducted to determine the value of the property. If the lender does not accept the offer, negotiations will begin in order to come to an agreement on the sales price.
Short Sales can be considered a benefit to both the seller and the lender. The lender is able to avoid incurring legal cost while the foreclosure procedure is in process as well as they typically get more money back through a short sale versus a foreclosure. Meanwhile, the seller avoids legal actions that a foreclosure can bring. Many people question whether opting to short sell will affect their credit. The answer is yes, but it also depends upon how your lender reports a short sale to the credit bureaus. However, your credit will have less of an affect then a foreclosure would, due to the fact that your loan is considered being “paid off”. This reflects in a more positive way. Choosing to short sell is considered less risky for a future loan versus a borrower who was foreclosed on.
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