When a home’s value has declined and the mortgage holder owes more than what the property is worth, the lender may agree to a short sale.
The lender may agree to accept less than what is owed on the mortgage and forgive the remaining balance of the loan. Short sale transactions can be lengthy and complex because all parties to the transaction must agree to the sale. Sometimes, the transaction can take weeks or months to complete.
The mortgage holder usually must provide evidence of financial hardship, including proof of their income and assets. This may include producing income tax returns and bank statements for the last several years.
Differences between short sale and foreclosure
A short sale is different than a foreclosure. With a foreclosure, the lender repossesses the property and then sells it, hoping to recover its costs. With a short sale, the lender often knows upfront that it is likely to take a financial loss, but usually believes it may be less than what it would lose with a foreclosure.
Short sales can benefit sellers who want to try to avoid the damage a foreclosure can cause to their credit. In some situations, the seller may be able to ask the lender to report the debt to credit bureaus as paid in full. However, sellers may be faced with difficulty finding another home to buy.
A buyer who purchases a short sale may be able to buy property at a lower price, however he or she may also have to pay costs that would otherwise be paid by the seller. When a home is listed for less than what is owed on the mortgage, buyers may have to take on the responsibility of negotiating with the lender.
A real estate attorney can provide representation for short sale transactions and ensure they are completed correctly.