Short Sale vs. Foreclosure

Q: What is a Short Sale?
A: A short sale is when the sale price of a property "falls short" (hence the name) of the amount the seller owes on the property. For example if you bought your home in 2003 for $200,000 and it is now worth $130,000, your sale would fall $70,000 short of the $200,000 you owe on your house (If you borrowed 100% of the purchase price from the bank in an 80/20 loan 7 years ago). It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better having the borrower foreclose. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency. Speaking to a lawyer would verify any responsibilities the borrower may have.
Q: What are the benefits to a Short Sale?
A: There are many different benefits for both the seller and their mortgage company (their bank).
1) Debt is satisfied for less then full amount.
2) Your credit record will not show a foreclosure. On average it will take 2-3 years more time to purchase another home if you choose to foreclose rather than short sell your home. In some cases, you could do a short sale you may be able to buy another home right away.
3) You MAY avoid the pursuit of a deficiency or judgment. It may limit the liability to the IRS.
4) The bank benefits because when thy foreclose they have an expense and an REO on their portfolio
5) The bank can receive incentives from the government
6) It enhances a banks relationship with their investors
7) The bank will avoid the added expense of servicing the loans.
Other Benefits:
The neighborhood avoids the blight of a foreclosure and the price impact.
There are a multitude of additional benefits to a short sale vs. letting the home go into foreclosure.

Overall the short sale process is much more common, therefore has become easier and much more positive then a foreclosure. Everyone's situation is different though, so please verify any legal and financial questions and implications with your legal counsel and CPA.

If you have any further questions about Short Selling your home or would like a Short Sale guide emailed to you, give me a call at (480) 316-0098 or send me an email to rosemarywatsonrealestate.com