What is a Short Sale?
“What is a short sale?” is the question on everyone’s minds these days. A concept that has been around for a very long time, a short sale in real estate is where a mortgage company looks to cut their losses by agreeing to a reduced payoff of their loan in exchange for not having to foreclose on the property. The phrase “short sale” was coined by mortgage companies to describe selling their loans short. Since a mortgage company experiences substantial losses when they become a property owner through the foreclosure process, the option to get rid of the property by agreeing to sell for less than their full payoff can be financially appealing.
In a short sale situation, the borrower is still the owner of the property. Unlike a foreclosed property where the mortgage company is the owner, in a short sale, the person selling the property is the homeowner. In addition, however, the homeowner must also obtain final approval from the mortgage company in order for the transaction to be completed. This creates a dual approval process because both the homeowner and their mortgage company must agree to the terms of the offer the buyer makes in order for the deal to consummate. Obtaining efficient approvals from mortgage companies is an art in and of itself which is why most borrowers should seek competent short sale specialists.
Why are so many people asking, “what is a short sale?” these days? There has been a meteoric rise in short sales in the past few years due to a combination of over-borrowing/over-lending, a decrease in real estate values and a sudden rise in unemployment. It is now estimated that nearly 10 Million Americans owe lenders more than the value of their homes. Many of these people need to sell their house right now because they are unable to afford their mortgage and are about to fall behind on payments, already are behind or possibly even facing foreclosure.
The good news for these homeowners is that they have a way out; the short sale. And a short sale helps the homeowner avoid foreclosure, it helps the lender save money, it helps the buyer get a great deal on a house and it helps all the professionals involved in the transaction. It’s one of the few win-win deals in real estate. That’s why so many people are asking, “What is a Short Sale?”