What is a short sale?
Most people who own a piece of property don’t own it outright. They still have a mortgage, and they pay it on a monthly or bi-weekly basis. This continues until the house is paid off, they sell the house and move to another or until the default on the mortgage.
It is understood that all of us fall on hard times and if you are unable to pay the mortgage on time, you should contact your lender and tell them what is happening. If you fall more than one month behind, you may start getting notices from the bank that you must pay or you run the risk of going into foreclosure. When this occurs, one of the options you have available is a short sale.
You might be asking yourself at this point, what is a short sale? It isn’t a difficult concept to understand. Let’s look into a hypothetical example and see how a short sale might be able to benefit those who are behind on their mortgage. Be sure to find the best short sale realtor in your area.
John and Lisa bought a home when the real estate market was booming. They paid what they thought was a fair price for the house but just a few years later, a recession hit. During that downturn in the economy, the housing market dropped severely, and John lost his job. They were unable to keep up with the mortgage payments, and before long, they were in default on loan.
This couple was facing a very difficult decision. They did not have the option to sell the home and get out from under the mortgage because they now owed more money for the mortgage than what the home was worth. This is a situation that is sometimes called being “upside down” in your mortgage. The option they were able to use was a short sale.
Why would they choose a short sale over a foreclosure? Because it held out the opportunity for them to get out from under the mortgage by selling the home for less than it was worth. Of course, they had to work with the bank to make sure that it was an acceptable option but it did give them the opportunity to get into something more affordable without having a hard hit on their credit scores.
There is some question as to whether selling a piece of property or a home in this manner is good or bad. Some people say that it puts the former homeowner in a worse financial situation because they might have to pay back the difference if they get a deficiency judgment. Then again, the bank may be willing to work with them because they are less likely to trash the house when they leave.
The decision as to whether you should sell a home in this manner is one that deserves careful consideration. As long as you work with the bank and they are willing to work with you, it might be the best option available in tough times.