Short Sale Definition
The expression short-term applies to real estate that sells for less than the mortgage owed on the home. It’s one way to get a homeowner to rid himself of the burden of real estate, if he is unable to make the house payments and the property value has fallen under the amount of the loan.
Identification
When buying real estate, the buyer normally pays the vendor sufficient to pay off all debts on the house. If the purchase price is”brief” and not sufficient to pay back the entire amount of the loan, it is a short sale. In a short sale, the seller, not the buyer, is responsible for making up the difference between the selling price and the loan balance, or the creditor agrees to forgive the outstanding amount.
Considerations
Before listing a home for a brief sale, the house owner needs permission from the lender. A creditor might agree to a brief sale without agreeing to forgive the outstanding balance. Following the brief sale, the creditor could file a deficiency judgment, which will be a judgment lien against the debtor whose sale failed to pay off the entire mortgage. The arrangement between the lender and borrower during the initial loan arrangement and short sale arrangement may dictate if the borrower needs to expect a deficiency judgment in the long term.
History
Prior to the real estate downturn occurring from the first decade of the 21st century, most consumers were not knowledgeable about the term”sale.” Struggling property owners used to sell their house to pay back the home mortgage, or lose the property from foreclosure, where the lender could market the house. With the downturn in the housing market, many homeowners found they were upside down inside their loans, meaning that they owed far more than the property’s current price. This made it impossible for the lender or seller to sell the home to pay back the loan. Short sales became a choice, whereby lenders avoided the foreclosure procedure by allowing the home owner to market the home for less than the loan balance.
Benefits
A advantage of a brief sale for the creditor is the avoidance of foreclosure expenses. Instead of foreclosing on a delinquent property owner, the lender allows the property owner to market the home for less than the amount of the loan. Even though the lender might not recover the entire loan balance in a brief sale, a foreclosure might lead to a larger loss for the creditor.
Caution
Struggling property owners considering a brief sale may experience additional financial commitments. In the event the lender forgives the outstanding balance, the homeowner might be asked to pay income tax upon the forgiven amount. Another concern for sellers includes unscrupulous businesses boosting short sales. In June of 2010, the California State Attorney General’s office issued a warning, which referred to a”alarming growth in short-term fraud across California in a field rife with scam artists.” Warning signs include employers asking surcharges, up-front fees and unlicensed representation.