What is a Short Sale?

Simply put, a short sale is when a sale is negotiated for a property, and the mortgage holder or holders, accept less than the amount owed on the property.
If the property owner, due to an acceptable hardship, is unable to make payments, it is the prerogative of the lender to accept the offer to purchase from a third party allowing the sale to happen. Selling short is definitely better than foreclosure, which stays on your credit record for ten years and can affect your credit score by 250-280 points. This can mean that if your FICO score was 680 before the foreclosure it could go as low as 400. On a short sale it is considered to be in “the pre-foreclosure redemption status” and when the short sale is completed it is reported as settled. Because of missed payments you credit 80 to 100 points, a lot better than 250 to 280. It can take 3-4 years after a foreclosure before a lender will offer a sensible interest rate and only 18 months to 2 years after a short sale to again qualify for a reasonable one.

Why would a lender agree to a short sale? Time is money. With the amount of foreclosures occurring today, lenders are very much aware that it can take over a year to get a foreclosure through the courts. Each day the mortgage holder holds the loan or the property, they lose money. They have associated expenses such as taxes, insurance, HOA fees, attorney fees, property maintenance fees, security costs; they will have to hire a realtor pay their commission and pay closing costs. Right now properties are not selling quickly or appreciating in value so there is serious motivation to agree to a Short-Sale. Each Short sale has different variables and depending on the circumstances (owner occupied , second home or investment property) if the debt is forgiven there may be tax implications. For any tax advice call your CPA and/or lawyer. I have done a number of successful short sales, and will be happy to share my experience on the subject at any time and without obligation.

If you have any questions on Green Real Estate e-mail me at bruce@BlueWaveRealty.net

Bruce N. Johnson Blue Wave Realty Certified EcoBroker