Understanding Short Sales
As foreclosure rates hit record levels, more sellers are turning to short sales as a way to avoid foreclosure.
So, how does it work?
In a short sale, the seller arranges with their mortgage lender to accept a price that’s less than the amount they owe on the property. As part of this arrangement, the lender typically agrees to forgive the rest of the loan. As a result, the seller doesn’t have to go through a foreclosure, the buyer picks up a property at a discount, and the lender avoids taking on the burden of unloading the property.
Sounds good right? Well, sellers need to know that a short sale may damage their credit, though probably not as much as a foreclosure. Previously lenders would only agree to a short sale if the loan was in default (many months behind in payments) but this has changed as lenders realized the properties were falling into disrepair or were abandoned. In many cases, they are allowing a short sale if the seller can prove they do not have the ability to repay the loan or continue making payments. This is often called a Hardship Letter. It is used to explain the sellers’ situation up to this point and why they will not be able to continue to make payments. Many times this is due to a job loss, medical issue or other major personal issues.
Buyers may get a great property at a discount, but they also will need to go through some extra paperwork too. Not to mention, they also need to be prepared to roll up their sleeves if that new property needs fixing up.
TBark Property Solutions may be able to help you through the process and assist with Understanding Short Sales.
Go to our website and provide us with some information and we will be in touch.
We mainly work in the Central Alabama area but are affiliated with investors all over the country.
If you have any comments please post them below.
Ken
