During this period of economic volatility, the housing market is one of the premier indicators of our economy’s status. One term that is thrown around very often is “short sale”. What is a short sale and what are the benefits to a homeowner?
A short sale is a real estate transaction in which the proceeds from the sale falls short of the balance of debts secured against the property.
Some benefits of a short sale include:
- Short sale agreements generally release borrowers from any obligation to pay back loan deficiencies.
- Borrowers are eligible to buy another home much sooner than if they are foreclosed on. The time frame for a short-sale home is usually 2-3 years, as opposed to 5 years with a foreclosure.
- Short sale transactions occur at no cost to you. A short sale’s selling expenses are paid by the lender, including agent commissions, back taxes, and attorney fees.
- Short sale transactions are far less damaging to a borrower’s credit than foreclosures.
- Generally no mortgage payments are due while awaiting a short sale transaction short sale, transactions usually take 3-6 months.
- There are cash incentives from various sources, such as lenders, The US Treasury (HAFA) and FHA (HUD). These entities pay cash for distressed owners to short sell their homes. Cash incentives range between $2,000 and $30,000.
If all of these benefits seem too good to be true, you should understand why banks and their insurers would much rather you short sell rather than draw out a foreclosure battle:
- Banks are very inefficient owners of real estate, and they must support a large staff of people to maintain their real estate properties.
- Banks generally lose substantially less money on a short sale than a foreclosure.
- Banks get some of their bad debt off their books much sooner with a short sale.