- When real estate ads refer to a house as a short sale, they mean that the price of the home is less that the mortgage balance. A depressed housing market means that some owners are living in homes that have a lower market value than what they originally paid. Unfortunately, home loan rates do not fluctuate based on market values and the owner still has to pay a high mortgage. The seller of a short sale may be trying to avoid a foreclosure. Before listing the home as a short sale, the owner must gain approval from the lender.
- Homeowners wishing to list their homes as short sales must complete a number of steps. The first is to contact the lender for approval. Lenders differ in their requirements. Some, like Bank of America, require notification of a planned short sale at the time of listing; others only need notification when a buyer has been found. Most lenders require completion of a short sale package. The package consists of a formal written request for the short sale and copies of bank statements, tax returns and any other documentation to support the need for a short sale. The lender has an independent appraisal done on the home to gauge the market value of the home. If there is an offer from a prospective buyer, the bank uses the appraisal to determine if the offer is reasonable.
- Homebuyers buying a short sale need to have patience and persistence for the buying process. Like buyers of foreclosure sales, buyers of short sales can purchase a home for a price that is sometimes 3 to 5 percent below market value. The difference between a foreclosure and a short sale is that the buyer can inspect the home and work with the seller to make needed repairs before the closing. While some pre-foreclosures offer these advantages, short sales tend to be less stressful. One drawback of short sales is that all offers are subject to lender approval, which can be very frustrating to buyers as it prolongs the buying process.
- Loan modification is an option for homeowners with unaffordable mortgages. In a loan modification the lender restructures the loan payments into a more affordable option for the owner. The requirements for loan modification mirror those of a short sale. but without the involvement of a buyer There is the option of deed in lieu of foreclosure, in which the owner turns over her interest in the home to the lender to avoid foreclosure.
For buyers, purchasing a foreclosure home is an alternative to a short sale purchase. They may get a better price due to the fact that lenders do not want to carry an inventory of homes on their books and are anxious to sell.
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