This article will try to address the following topics related to Short Sales:
- What is a short sale short sale
- Short Sales and the different ways it can come about and be structured
- Talk about how a Short Sales is different that foreclosure or bankruptcy
- Talk about the implications for the seller
- Talk about the implications for the buyer
- Address investor related questions on capitalizing on short sales (which you will soon find based on the definition is not really what you investors are looking for)
Definition:
A short sale is an agreement with the lender(s) to accept less than the amount owed by a borrower via a sale of the property to a non-related third party. When a borrower is faced with a hardship, has fallen behind (or is likely to fall behind) in the mortgage payments and the home cannot be sold for the amount owed to the lender(s), a short sale agreement may be an alternative for distressed homeowners.
Although, the "agreement" can take many different forms, there is no other definition of a short sale. I say this because many realtors and some investors simply throw the term around as if it meant "a sale under market value." No. A bank owned (foreclosed) house is not a short sale. A seller deciding to lower their price and take less profit is not a short sale. An old lady that owns her home free and clear, selling a $150k home for $75k, IS NOT A SHORT SALE. For it to be a Short Sale, someone must be getting "shorted." Either the seller, or the bank. I will explain how both of those happen in more detail presently.
Another important definition of a short sale is how it differs from foreclosure. In foreclosure, the homeowner falls way behind on their payments and the bank repossesses the house and sells it. In almost all cases, THE BANK PURSUES THE HOMEOWNER FOR THE DEFICIENCY!!! No one seems to know or believe this, but just ask someone who has gone through foreclosure, they will tell you the only way out of this was to file bankruptcy.
How It Can Happen - The Arrangement
Most short sales arise when a seller owes more on their house than they can sell it for (upside down). The owner of the home then attempts to make an arrangement with their lender to sell the house for less than is owed.
