What is a short sale? A short sale is a process that occurs when a home-owner cannot afford to keep a house but does not want to go into foreclosure, and therefore agrees to sell the home for less than what is owed to the bank, in effect assuming a deficiency (money still owed to the bank) even after the home has been sold. In order for a short sale to take place, the lender must agree to release the lien to the property in order to clear the title and make it transferable to the new owner. In some states, lenders are not allowed to hold the sellers accountable for deficiencies.
Benefits of a short sale. The short sale process offers a number of benefits, for not only the seller escaping foreclosure, but also for the lender and the new buyer. In most cases, it is less costly for lenders to agree to short sales than it is for them to pursue foreclosure, even if they must forfeit claim to a deficiency. The benefit for new home buyers is easy to identify, as short sales often enable people to purchase properties at below market value.
The short sale process. Most lenders will not agree to a short sale before the home-owners have proven economic hardship that disables them from continuing their mortgage payments. This is done by way of a short sale application package, which includes a letter explaining the financial hardship, as well as a market analysis of the home’s current value and a real estate broker’s opinion on what the home might sell for in its current condition. Different lenders have different criteria on which they assess short sale applications, and the approval process (if the application is approved) can involve multiple levels of approval and take several months. Once a short sale agreement is reached between the home-owner and the lien holder, the property can be put on the market for the price that is specified in the agreement.