It is a bad situation when the value of a home dips below the total mortgage taken by the homeowner on the property, but the situation gets even worse if it becomes difficult for the borrower to pay the mortgage payments, and foreclosure or bankruptcy appears to be the only way forward. A real estate short sale can come to the rescue of the borrower in such a situation.
So, what is a real estate short sale? It is a three-way agreement reached between the homeowner, the new buyer of the home, and the lender, under which the homeowner sells the house to pay off the outstanding mortgage with the sale proceeds with a discount.
A real estate home mortgage short sale takes place when the outstanding mortgage on the property becomes higher than the market value of the home and the homeowner is not in a position to meet the loan repayment obligations. However, the borrower needs to prove inability before the lender to meet the mortgage payment obligations. Despite the home being sold at a loss, the short sale works as a win-win situation as the seller walks away from the loan without any impact on their credit score and without facing the risk of foreclosure or bankruptcy.
The buyer gets a house at a discounted price, while the lender also tends to agree to short sale arrangements because of the risks and higher costs involved with other options like foreclosure or bankruptcy. However, the lenders are not obligated to agree to a short sale and the onus lies with the seller and the buyer, to convince the lender for the arrangement. There are short sale real estate agents who make the short sale process easy for the buyer and seller by arranging for legal and accounting-related help.
In most cases, it is the buyer of short sale homes who has to do most of the groundwork, as the buyer is the biggest beneficiary in terms of getting a home at a discounted price. There are also many investors who keep looking for short sale homes and later sell them at higher prices for profit. Foreclosure listings are generally the main source of information for homes with potential for short sale. However, it is better to look for properties that are yet to go into the foreclosure process.
Currently, the global economic meltdown has not left many buyers in the real estate market, but at the same time, it has also led to many homeowners facing the risk of foreclosure and therefore looking for short sale opportunities. This has also made lenders more open to short sale deals. As lenders are facing the growing risk of mortgage foreclosure, which involves a tedious and costly procedure, they are more willing to agree to short sale deals.
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