What is a Home Short Sale?

The process of a home short sale may seem simple at first glance, but it often ends up causing some heartbreak because this debt reduction procedure seems to have a low completion rate.

There are a number of entities that must come together to make it a success. This article will explain what a short sale is and how the process works.

What Is a Short Sale?

A short sale is a procedure which can take place when the mortgage owed on a real property like a residential home, exceeds the actual value of the property.

In other words, a steep decline in the value of the property after the mortgage agreement is already in place can make it financially unreasonable for the home owner to continue making payments, especially when he may be under financial stress due to a job loss or other financial catastrophe.

The original lender is the one who usually holds the cards on whether or not a short sale will go forward or not. The lender will calculate the cost of each option, foreclosure or a short sale, and then normally go with the one which causes the smallest loss. If a short sale is a financially superior option for the mortgage lender you can normally expect the it to go forward at the agreed upon price.

How a Short Sale Works

When you attempt a short sale of your home, the following steps will usually take place:

• First, you'll need to evaluate the value of the property against the rest of the market.
• Next, you will need to gather up all the necessary documents and submit your proposal to the lender.
• The lender must agree to the proposal in order for the process to go forward.
• The next part of the process is when the home is listed on the market and awaits an offer from a buyer.
• Using a real estate agent to market the property will usually a huge effect on the number of interested buyers.
• The lender will carry out their own evaluation of the property's current value.
• A Lender Negotiator will examine the entire circumstance of the case and then negotiate the terms and conditions of the short sale between the lender and new buyer.
• If both parties come to an agreement the short sale will proceed.
• If a mutually acceptable agreement cannot be reached the process of finding a buyer will be repeated.

Benefits of Short Sale Over Foreclosure

There are several notable benefits for both parties when proceeding with a home short sale procedure rather than a foreclosure. Foreclosure often incurs large costs on the lender's side. For them it can be preferable financially for you to arrange a short sale as long as the economics are feasible. For the home owner, a short sale has less severe negative impact on your overall credit than a foreclosure.

The short sale itself will typically not show up on your credit report, although if you have been late on mortgage payments preceding the sale that will have a negative effect on your FICO score.

One of the other benefits of a short sale from the homeowner's perspective is that the transaction happens under your control, rather than the lender administrating all the proceedings like they would in a foreclosure case.