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What is a Short Sale?

KWWhether you’re looking for a new home or considering selling your home, odds are you’ve heard the word “short sale” thrown around a few times. What does this term mean? Read on to find out.


What’s a Short Sale?

In a short sale, a seller facing the possibility of foreclosure enters into an agreement with their mortgage lender to accept a price for the property that’s less than the amount they¬† still owe on it. The seller makes absolutely no profit on the sale, but avoids many of the problems that would come from a foreclosure.

Possible Advantages

With a short sale, sellers avoid having to go through a lengthy foreclosure process and prevent the impact of a foreclosure on their credit report. In a short sale, the seller and the lender work together to determine the details of the agreement, but typically sellers who complete a short sale also avoid owing the balance of the loan.

The biggest advantage to buyers is clearly the prospect of moving into a new property at a great discount. Buyers may also find that short sales have an additional benefit over foreclosures since there’s not much of a risk that the buyer will need to take action to remove the seller from the property.

Possible Drawbacks

Sellers considering a short sale should understand a few important things. It’s crucial to understand that not all lenders will offer to relieve the seller of the responsibility of paying off the balance of the loan. Sellers should get a solid commitment from lenders that states this is part of the deal. Also, though the seller is avoiding a foreclosure, even a short sale may affect their credit score to some extent. So, sellers should discuss this issue with their lender to figure out how the process will be reported to the credit agencies.

Even more important to understand is not all sellers will qualify for entering into a short sale. For example, few lenders will enter into a short sale agreement with sellers who have not yet missed multiple payments. So, if you’re a seller thinking about a short sale, you’ll want to talk to your lender about the options available.

Buyers need to be cautious too, since getting a deal on a short sale is not as easy as it may sound. In fact, there are some extra steps that buyers need to take when entering into a short sale, which can require doing some additional homework and assembling the right paperwork.