A home goes into short sale when the owner realizes that they can no longer pay the mortgage. Rather than waiting for the bank to foreclose the home, the landlord begins the short sale process by submitting a request to the lender. A short sale is when a homeowner sells their property for less than the amount owed on their mortgage. In other words, the seller lacks the cash needed to pay off the full mortgage loan.
The bank or lender generally accepts a short sale to recover a portion of the mortgage loan owed to them. 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, 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 home and pay off part 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”. If you still have cash assets, you can expect to use them to continue making mortgage payments or to compensate for the gap between the sale price and the mortgage amount. Mostly, the big benefit is the increased chances of getting the house at a reduced price, knowing that the house is in short sale mode and that homeowners, and probably even the bank or lender in many cases, will want to sell the house and get out of the mortgage loan. If you haven't already done so, you should consult a real estate agent, a tax professional, and an attorney, since short selling is more complex than the average sale of a property.
Before you give up a short sale, talk to your lender about reviewing the repayment plan or modifying the loan. You might be tempted to forgo inspection by buying a short sale to speed up the process, but that would be a big mistake. In most cases, accepting a short sale will cost them less money than if they let their property go into foreclosure. If you decide to sell your home for less than what you owe in a normal sale, you'll have to pay all the fees and the amount you would need to pay the mortgage.
Once the buyer agrees to make a short sale offer, the owner contacts his bank and completes an application requesting the short sale status of the home. For a short sale to take place, both the lender and the landlord must be willing to sell the home at a loss. Since short sales are not accompanied by the typical disclosures of a normal home sale, it is up to the prospective buyer to inspect the property and identify any faults. In real estate, a short sale can occur when a homeowner sells a home at a price lower than the outstanding mortgage amount.
As a general rule, it's wise not to go to your lender with a short sale request until your mortgage payments are in default or when you can't continue to make any payments. If you are considering buying a property that is listed as a short sale, don't expect any repairs to take place.