What is a “SHORT SALE”?
A Short Sale is the listing and sale of a property where the sales price is less than the payoff of the loan(s). Your lender or lenders agree to take less than what is owed against the property and gives a full release of the deed of trust(s). In certain cases, they also agree not to pursue a deficiency judgment against the owner. Lenders are inclined to agree to a short sale if a short sale results in less loss to the lender as compared to foreclosure. The advantages of a short sale to the borrower include avoiding a foreclosure which is reported on the borrower’s credit history. A short sale usually prevents a borrower from purchasing another home for at least two years and is reported on your credit report as a “settled debt for less than that amount owed”.
Implications of a Short Sale.
The reason a distressed homeowner should proceed with a short sale is to protect their ability to obtain financing in the future. Most short sale result in a “settlement” status on their credit report as opposed to “foreclosure”. If foreclosure proceedings have started, the credit agencies may report “foreclosure proceedings started, short sale”. Fannie Mae and Freddie Mac guidelines are more favorable to borrowers with “short sale” on their credit report, typically allowing a borrower to obtain financing for a new home within two years. On the other hand, a foreclosure remains on your credit report for five years, making it very difficult to finance the purchase of another property. If the homeowner gets through a short sale, the impact is very minor as opposed to the impact of a foreclosure. A Short Sale offers a fresh start while minimizing damage to credit and avoiding a foreclosure.
Time Frame for a Short Sale.
Typically a short sale takes at least 90 days to negotiate and to receive a written response from your lender or lenders. Upon written approval, your prospective purchaser will begin their loan process (if a loan is involved), which can take up to another 60 days. In short, it usually takes 3 to 5 months to get a short sale to closing.
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