When a homeowner is not able to make payments, the lender may initiate a foreclosure process.  When a home is foreclosed on, there are often a number of negative effects that can be far-reaching.  The individual, the family, and even the community are affected.  The local housing market is impacted, which also impacts the local economy.  When foreclosure rates across the nation increase, the overall economy is also affected.

A Short Sale Can Prevent Foreclosure

One of the options a homeowner may have when faced with foreclosure is called a short sale.  This can happen when the lender agrees to accept an amount less than the balance of the loan as payment in full.  A lender may be willing to do this because a foreclosure is expensive for the lender, and if they don’t think they can sell the home after the foreclosure for as much as they will get from the short sale.

Requirements for a Short Sale

A short sale must meet certain requirements in order to qualify:

  • Homeowner must be behind on making mortgage payments
  • The amount of equity the homeowner has in the home must be minimal to nonexistent.  In most cases, the homeowner is underwater in the home.
  • Economic hardship must be proven by the homeowner.

In order for a short sale to be completed, the following things must also be in place:

  • A lender must be willing to accept the short sale
  • Someone must be willing to purchase the home

Benefits of a Short Sale

One of the benefits of a short sale is that the lender may be able to receive a greater amount for the home than if they have to go through the foreclosure proceedings.  The impact on the community is that market values for homes are maintained at a better level.  The homeowner is benefitted by having a much smaller hit on his or her credit score that is more easily repaired than the credit hit by a foreclosure.

Who are the Parties Generally Involved in a Short Sale?

A short sale will usually involve more than just the home seller and buyer and their respective real estate agents.  Frequently, it will also include a housing counselor, the servicer on the loan, junior lien holders, and possibly mortgage investors and insurers.

Making a Short Sale Work

The key to getting a short sale completed is often a competent realtor.  It is important to work with someone who has experience with short sales so that no details are missed.  Pricing the home correctly, finding a buyer, filling out the paperwork, and completing negotiations are usually on the shoulders of the real estate agent.