What is a Short Sale?

By definition a short sale is literally the sale of a home for less money than is currently owed the lender on the outstanding mortgage being foreclosed on, also known as a pre-foreclosure sale. In other words the home is “upside down“ from a financial aspect. Therefore in order to successfully conduct a short sale, the foreclosing lender has to agree to it, essentially agreeing to accept less money than is owed on the loan secured by the house.

Many homeowners who bought around the top of the market, back in 2004 through 2006, are now stuck with having purchased more home than they could afford. Through the ease of obtaining exotic adjustable rate mortgages during those years, homeowners were over-encumbered with debt, having financed as much as 110 percent of the sales price of their home.

As a result, they are now finding themselves with a monthly payment that is unaffordable as interest rates adjust to higher rates, thus bringing the new payment to as much as 25 to 50 percent higher than the initial payments they made.

Now they are left looking for a way out of a dire financial situation without the stigma of a foreclosure. For distressed homeowners one possible option is the short sale. Selling a home via a short sale is a legitimate method for stopping the foreclosure process, allowing the homeowner to get on with life and with less of a "ding" to their credit record.

Lenders are not in the business of owning real estate. They get upset when they have too many properties on their REO (real estate-owned) books instead of out in the market making it a profit through monthly mortgage payments. Plus, the foreclosure process is not free. Every house they foreclose on costs them thousands of dollars. So, in some instances, agreeing to a short sale is in the lender’s best interest.

When considering the purchase of a short sale it is advisable to seek the assistance of a real estate professional who is well versed in short sales. Not all real estate brokers or sales agents know how to conduct a short sale or how to work with lenders in negotiating one. With the assistance of a real estate agent experienced in this type of purchase you can negotiate a favorable price for both the owner and the lender, and you as a buyer stand to make a good profit. The Cotten Team specializes in listing short sales as well as assisting buyers in the purchase of one. They will explain to you the reasons why a short sale typically sells for less than other properties.