Better understanding of a Short Sale:
What is a Short Sale?
Short Sales take place when a property is sold for a value less than the amount of a loan against the property. An example would be a home being sold for $150,000 even though the loan against the property is for $200,000.
What Happens to the Remaining Amount of the Loan?
Short Sales are an option a property owner can take if they cannot make their loan repayments. If a short sale is approved by their lending bank, the bank will forgive the remaining amount of the loan in exchange for a lump sum payment when the property is sold. Short sales are considered on a case by case basis and not all property owners are eligible. If a property owner is falling back on his loan payments, the bank has the option to let them initiate a short sale to help and recover the loan amount.
Do All Banks Accept Short Sales?
Not all banks will accept a Short Sale request from a property owner who is behind on their payments. Banks have certain requirements that must be met for a property owner to initiate a Short Sale, and these requirements vary from bank to bank. One thing that banks take into consideration is the costs of selling the property to see if it’s economically viable for them. Another thing the bank needs to calculate is if it is better to foreclose on the home. If the bank forecloses, it loses it’s monthly payments, and could wind up with a large amount of properties incurring even more costs. Short Sales often are more economically viable as foreclosing on a home incurs lawyers fees, court fees, and transfer fees, which the bank will need to pay again when it sells the foreclosed property.
Why Do Some Banks Pay The Borrower’s Costs in a Short Sale?
Depending on the condition of the property owner, the bank may choose to pay the costs associated with a Short Sale to help expedite the process. This is a smart move on the bank’s part, as this helps the property be sold more quickly, so it does not depreciate in value over time. Since the loan taken out against the property at a certain rate, it is best to sell the property as quickly as possible to avoid any further losses.
Will Short Sales Always be a Success?
Just as with all decisions when buying and selling property, Short Sales have their downsides as well. One downside to a Short Sale is the time involved. There is generally a very strict time frame imposed by the bank, and if the property is not sold within that time frame the seller could face foreclosure. The other downside is the hit the seller will take to their credit score, however, it should be noted that the hit they experience from a Short Sale, is less than that of a foreclosure.
With John Herman’s experience in executing real estate transactions in the state of Illinois, our team can guarantee success in completing a Short Sale, while maintaining the integrity and looking out for our client’s best interests. We are committed to assist and guide clients through this difficult process, and always will choose what is best for our clients and not just our own pockets.