Short Sales can benefit both the bank and the homeowner when an acceptable agreement can be reached.
For the home owner in distress, being able to sell the home without coming to the closing table with money he doesn't have is a huge relief. Avoiding foreclosure by short sale does not have the huge credit damage a foreclosure carries. In fact a homeowner who maintains good credit after a short sale will be eligible to apply for a Fannie Mae loan as soon as 2 years after the foreclosure. Homeowners who lose a home for foreclosure are required to wait at least 5 years before they can reapply for a Fannie Mae loan.
The negative effects of having a foreclosure on one's record never goes away, it becomes a permanent scar on one's credit history.
Remember that credit is money ~Benjamin Franklin
A short sale is not recorded as a negative, because of the nature of the transaction. When the bank agrees to accept less than the owed amount, the debt is paid off in full upon sale. No black mark on the credit.
It is important to note delinquent payments will impact the credit score.
In addition to impacting credit, foreclosure may also have a negative effect on current and future employment. Many jobs require the applicant to have impeccable credit.
From the perspective of the bank, providing a short sale to the consumer means getting a non-performing asset gone from the balance sheet. A short sale provides a shorter, less expensive bottom-line than does the foreclosure process.
Assuming a homeowner has no choice but to sell the property and move on, a short sale makes sense despite the inherent risks associated with actually getting it done.
Real Estate Short Sales are Anything BUT Short!
Despite the obvious benefits for both sides, short sales are not easy to accomplish.
Mortgage financing in Colorado became very creative over the past decade. Most homeowners have more than one mortgage on their home. In addition, there are typically other liens on properties besides the mortgage. Liens for taxes, Home Owner Association dues are often present; all these need to be negotiated and cleared when a property is transferred to the new owner.
The process is tricky and often very messy. It takes determination and constant contact plus frequent communication with all involved.
The benefits outweigh the risks, so now what? Tomorrow I'll explore how to get started on a short sale.