A Short Sale Can Be Better than No Sale at All
A year or two ago, most people had never even heard of the term “short sale.” Today, though, as the real estate business has become a heavy casualty of the severe economic downturn, short sales are becoming an increasingly popular alternative to foreclosures — especially for the buyer.
A short sale happens when the sale price is less than what the seller still owes to the lender via a mortgage loan. Let’s say you own a home, and you know you won’t be able to continue making the payments — that foreclosure seems inevitable. For you, a foreclosure is bad news on a couple of different fronts: Your credit score will take a big hit, you’ll have to move elsewhere, you stand to lose money on the deal (potentially a lot of money), and you compromise your eligibility for a future home purchase.
That’s why short sales have risen in popularity. Today’s falling home prices, combined with homebuyers making low down payments at the time of sale, mean that many homeowners owe more on their mortgages than the properties are currently worth. (This is what’s known as an “underwater mortgage.” It’s a lot like the term “upside down on a car loan,” except it’s often worse: an “underwater mortgage” typically involves larger dollar amounts.)
Add to that the population of homeowners who face foreclosure due to resetting mortgages (when adjustable rates reset, for example), not to mention the need to relocate for work or other reasons, and it makes sense that lenders would consider short sells to offset bigger losses from foreclosures.
On the other side of the coin, a short sale doesn’t recoup all of the home borrower’s losses, but it can help to limit the damage — and hit the “reset” button on the borrower’s future finances at a slightly more desirable level.
