The Big Benefit of Short Sales

With Florida foreclosures still at record levels, many sellers, eager to cut their losses and get a fresh start are considering a short sale as a viable option. So what exactly is a short sale and who can benefit from one?

Who Benefits from the Deal?

Realistically, the seller, lender and the new investor can all benefit from taking part in a short sale. The seller avoids foreclosure while the buyer obtains the property at a reduced rate.

The lender also benefits because they look at the short sale as a way to avoid the burden and extra cost incurred when dealing with a foreclosure. With so many homes on the market right now, a short sale makes sense to the lender. The deal is wrapped up quickly and the home never sits vacant, becoming a monthly loss for the bank.

For a short sale to occur, the seller initiates the deal by contacting the lender who then agrees to accept a price that is lower than the amount owed on the property. If this occurs, the seller is typically forgiven the remainder of the loan and they don’t carry the blemish of a foreclosure on their credit record.  A short sale will affect the seller’s credit to some degree, but isn’t considered as serious as a foreclosure.

Getting it Right

In order to avoid any potential pitfalls, the buyer and seller should have a solid understanding of the short sale process. There are two scenarios in which a short sale is almost certain to fall through:
•    Bankruptcy– If the seller has already filed for bankruptcy, few lenders will negotiate a short sale. A short sale falls under the heading of a ‘collection activity’ which is prohibited during a bankruptcy.
•    No late payments– The seller must be in financial distress in order to qualify for a short sale arrangement. If the seller is not behind on mortgage payments, other options will be looked at by the lender first.
If the seller does qualify for a short sale arrangement, all bank negotiations and agreements should be made in writing. The seller has three main subjects to negotiate; selling price, forgiveness of outstanding balance of loan and how the bank will report the short sale to the credit bureaus. Once those three issues are settled the short sale process can begin.

Can a Short Sale Work for You?

As an investor, buying a property in a short sale has big benefits. You will be able to pick up the property at a substantial discount. Since the lending institution is eager to avoid any extra losses, they may be willing to offer favorable financing terms to you as well. Finally, since the seller is playing an active role in the entire process, you will have their cooperation, unlike a foreclosure where there is typically an eviction process to deal with.

When handled the right way and a thorough knowledge of the process, the short sale offers unique benefits to every party involved.