What does a short sale mean in real estate?

A short sale occurs when a homeowner with serious financial problems sells their home for less than what they owe on the mortgage. A real estate short sale is an offer of a property at a sale price lower than the amount owed on the current owner's mortgage.

What does a short sale mean in real estate?

A short sale occurs when a homeowner with serious financial problems sells their home for less than what they owe on the mortgage. A real estate short sale is an offer of a property at a sale price lower than the amount owed on the current owner's mortgage. A short sale is the sale of real property for which the lender is willing to accept less than the amount owed on the mortgage. A short sale, also known as a pre-foreclosure sale, is when you sell your home for less than the remaining balance of your mortgage.

If the mortgage servicer agrees to a short sale, you can sell your house and pay off a portion of your mortgage balance with the profits. Depending on your situation, you may be asked to make a financial contribution to cover the balance, but once the short sale is complete, you will be exempt from your responsibility to pay the remaining balance, which is called a “deficit exemption”. A short sale occurs when a property is sold for less than what is owed on the mortgage with the lender's approval. Learn about the advantages and disadvantages of these types of transactions for the seller and the buyer.

Since short selling is a desperate effort to avoid foreclosure for both the seller and their lender, they will only come to fruition if those two parties have established that short selling is the best alternative. While there may be cases where a short sale property is actually a great deal, that won't always be true, so be careful. Home sellers who participate in short selling can expect to submit several signatures and documents to their mortgage lender to show that they cannot repay the full value of the loan. After a foreclosure, most people must wait seven years before getting another home loan (while a short sale can cause you to wait two years).

Short selling tends to be long transactions and requires a lot of paperwork, and can take up to a full year to process. You must have a good understanding of everything related to buying a property that is listed as a short sale. Before making an offer on a short sale property, work with your real estate agent to do research work on the property. A short sale hurts a person's credit score less than a foreclosure, but it's still a negative credit mark.

A short sale will give you some control over the process and time to find another home, while a foreclosure occurs according to bank conditions and ends with the seizure and eviction of the property. Because inexperienced homebuyers may not want to worry about the complexities of a short sale, there is likely to be less competition with other buyers for these types of sales. You may be working with the seller and their agent to submit an offer, but keep in mind that, ultimately, the lender is in control of the short selling process. In a short sale, sellers don't make any profit from the sale, the bank or the lender keeps all the income.

Completing a short sale has no cost, it usually has a lower impact on your credit (a foreclosure will stay on your credit report for seven years) and completing a short sale may have tax advantages compared to foreclosure. This means that the short selling process is often lengthy and unpredictable, even if the seller and the buyer agree on the terms. A short sale is different from selling your house at a loss because you won't pay any fees or commissions (everything is paid by the lender). Short selling usually occurs when a homeowner is struggling financially and hasn't made one or more mortgage payments.

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George Deschene
George Deschene

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