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A bank short sale refers to property that has entered into preforeclosure because the homeowner has fallen behind on their mortgage payments. When lenders enter into short sale arrangements, they agree to accept less than is owed on the home loan in exchange for a quick sale of the property. Short sales offer struggling homeowners the opportunity to be released from the financial constraints of homeownership.
Lenders can enter into bank short sale arrangements for any type of real estate. This can include single family homes, condominiums, mobile homes, manufactured homes, commercial properties and undeveloped land.
Bank approval must be obtained before borrowers can sell their property for less than is owed. These transactions are generally handled by the bank loss mitigation department. The process can be daunting and requires substantial financial documentation. Experts recommend working with a lawyer, realtor or short sale specialist to obtain the best results.
The majority of lenders require short sale properties to be sold through a licensed realtor. In some instances, banks might allow borrowers to list the property as “For Sale by Owner.” Short sale real estate must be sold within a specified timeframe established by the bank.
Not every mortgage lender engages in short sale transactions. Those that do, require borrowers to adhere to strict guidelines. If borrowers do not follow protocol, lenders can commence with foreclosure proceedings.
It is estimated that each foreclosure property costs banks $60,000. Engaging in short sale transactions allow lenders to recoup some of their losses and avoid expensive legal fees associated with the foreclosure process.
When borrowers are facing foreclosure, a bank short sale can be the answer to their prayers. However, there are pros and cons to this type of arrangement which should be thoroughly discussed with your lender and tax advisor.
Short sales have a long-lasting effect on your credit rating. It is important to determine the type of short sale your lender offers. Some banks accept the sale price as payment in full and allow borrowers to walk away without owing the balance. Other lenders persue the borrower for the balance owed on the loan.
Careful consideration should be given if your lender engages in issuing deficiency judgments. When borrowers are liable for the loan balance, deficiency judgments can amount to several thousand dollars. The judgment remains on the debtor’s credit report until it is paid in full.
Each lender establishes protocol for handling bank short sale transactions. Since the bank will incur financial loss on the property, the borrower must prove they do not own any assets which could be used to repay the note. The short sale process generally takes four to six months to complete.
