What Is Real Estate Short Sale?
A real estate short sale occurs if the outstanding loan balance far exceeds the value of the property that is being used as collateral. This is one way in which you can avoid foreclosure. There are few lenders that don’t agree to a short sale. For instance, if the size of your mortgage is USD$100,000 and the value of your home is not more than USD$85,000, you are short by USD$15,000 that excludes the closing costs. The closing costs usually include escrow charges, real estate commissions recording fees etc. This is because short sale means that the lender is agreeing to accept the loan amount that is much less than what he had extended to the borrower. Moreover, every borrower that falls behind on payments doesn’t necessarily qualify for a short sale.
Are you eligible for a short sale? In the event you don’t meet the following criteria, you may not qualify for a short sale.
- Value of your home has dropped
The value of your home should be less than the amount you owe to your lenders.
- You are on the verge of falling behind on payments
Earlier if you were current with your payments, you would not qualify for short sale. However, this isn’t the case presently. Lenders prefer to take a step before you default.
- You are facing financial hardship
You will be required to prove your financial hardship with a supporting document. It should contain valid reasons as to why you are not being able to make payments. The following situation will be regarded as instances of financial hardship –
1. Unemployment
2. Death
3. Marital separation
4. Medical emergency
5. Bankruptcy
- You have no assets left
You have to prove to the lender that you don’t have assets. Your lender may ask you to produce your tax returns or financial statements for the same. In case you have assets, the lender disqualifies you for short sale. This is because in case you are having assets, you can sell them off to pay the amount that is “short”.
Effects of short sale
If you qualify for short sale, it will remain in your credit report. Short sale is usually regarded as a “pre-foreclosure”. It may not be as bad as foreclosure but there are many lenders that refuse to distinguish between the two.
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