From Wikipedia, the free encyclopedia
A
short sale is a sale of real estate in which the proceeds from the
sale fall short of the balance owed on a loan secured by the property sold.
In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or
financial hardship on the part of the mortgagor. This negotiation is all done
through communication with a bank's loss mitigation or workout department. The home
owner/debtor sells the mortgaged property for less than the outstanding balance
of the loan, and turns over the proceeds of the sale to the lender, sometimes
(but not always) in full satisfaction of the debt. In such instances, the lender would have the right
to approve or disapprove of a proposed sale. Extenuating circumstances influence
whether or not banks will discount a loan balance. These circumstances are
usually related to the current real estate market and the borrower's financial
situation.
A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a
short sale is predicated on the most economic way for the bank to recover the
amount owed on the property. Often a bank will allow a short sale if they
believe that it will result in a smaller financial loss than foreclosing as
there are carrying costs that are associated with a foreclosure. A bank will
typically determine the amount of equity (or lack thereof), by determining the
probable selling price from a Broker Price Opinion BPO (also known as a Broker
Opinion of Value (BOV))
or through a valuation of an appraisal. For the home owner, advantages include
avoidance of a foreclosure on their credit history and partial control of the
monetary deficiency. A short sale is typically faster and less expensive than a
foreclosure. In short, a short sale is nothing more than negotiating with lien
holders a payoff for less than what they are owed, or rather a sale of a debt,
generally on a piece of real estate, short of the full debt amount. It does not
extinguish the remaining balance unless settlement is clearly indicated on the
acceptance of offer.
Short sales are common in standard business transactions in recognition that
creditors are not doing debtors a favor but, rather, engaging in a business
transaction when extending credit. When it makes no business sense or is
economically not feasible to retain an asset, businesses default on their loans
(called bonds). It is not uncommon for business bonds to trade on the
after-market for a small fraction of their face value in realization of the
likelihood of these future defaults.
Selling
short can be scary - Sacramento Business, Housing Market News | Sacramento
Bee
Home
Front: Selling short can be scary - Sacramento Business, Housing Market News |
Sacramento Bee: "A second concern
People trying to do short sales
also are worrying about reports that some lenders are selling second mortgages -
typically the down payment loan - to collection agencies. They fear that in
three or four years those agencies will be on the phone seeking
payment.
Hainsworth confirmed it's happening. Elk Grove bankruptcy
attorney Jonathan Stein said the owner of a 'second' has up to four years after
the default date to collect. He said it's critical that your real estate agent
negotiates a solution to the second.
Stein fears some people will rebuild
credit scores after the hit of a short sale only to file bankruptcy when
confronted later by a collection agency."
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