What is a short sale?

In a nutshell, a short sell is when the proceeds from the sale of a home are not sufficient to cover the balance due on the mortgage.  Because of this deficiency, closing the sale requires the approval of the lender(s). 

Short sales are win-win-win situations for all parties concerned:

  • The Seller Wins
    With the understanding that a foreclosure is perhaps the most detrimental record to have in your credit history, it’s easy to see how the seller wins by avoiding the pending foreclosure. Whereas it can be as many as seven years before someone with a foreclosure can purchase a home, someone with a short sale can be eligible for purchasing in as little as 18 months.
  • The Bank Wins
    The bank does not want your property…particularly in today’s market.  What the bank wants is a return of the money you borrowed.  Estimates vary, but the average cost to the bank of foreclosing on a property is somewhere between $40k and $60k.  Essentially, the bank wants to avoid foreclosure as much as you do.
  • The Buyer Wins
    Because the bank agrees to accept less than what it owed on a property, and typically less than what the property is worth, a buyer has the opportunity to purchase a home at below market pricing.

 

The typical process for a short sale is:

  1. Homeowner lists the property for sale with a Realtor.  Note:  most lenders will not consider a short sale for a property that isn’t listed.
  2. A potential buyer makes an offer on the property for an amount that is not sufficient to cover the outstanding mortgage.
  3. The Realtor works with the homeowner to gather the necessary documents for a short sale package to be sent to the bank.  This is an extremely important part!  Presenting a complete, accurate, and and well organized package is one of the best things you can do to ensure your short sale is approved.  The package will contain the offer, listing agreement, and seller’s financial data.
  4. The bank orders a Broker Price Opinion, commonly known as a BPO.  This BPO is another broker’s opinion of the current market value of the property.
  5. The bank compares the BPO amount to the buyer’s offer and will either reject, accept, or counter offer.
  6. If terms acceptable to all parties can be agreed upon, the lender will delay the foreclosure so that the sale can occur.
  7. At closing the seller is generally not allowed to receive any proceeds.  The exception to this rule is FHA loans under which the seller can receive up to $1,000.
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