Short sales are effective options all parties involved in the transaction, the seller, buyer and the lender if they are successful. The seller is let off the hook on their mortgage, the buyer gets a discounted property and the lender saves money and time by not having to pursue a foreclosure action against the seller. However, short sales are not as rosy as they sound. Here are some pitfalls to be aware of:
Pitfalls for Seller
- Short sales take a very long time to get approved. Start early by communicating with your lender and finding out if your property qualifies for a short sale. Start the short sale process right away so when you do find an interested and qualified buyer, they won’t get discouraged and walk away from the deal because of time factors. A pre-negotiated short sale is much quicker because the lender has already approved the sale price.
- A short sale affects your credit, just not as bad as if you had a foreclosure or bankruptcy reported on your credit report.
- You may be liable for a deficiency judgment. This is the amount of the debt still remaining on your mortgage balance after the short sale is approved and the transaction closes. Although the likelihood of your lender pursuing a deficiency judgment against you is low, you still need to be aware that they may have the legal recourse to do so(click to read when deficiency judgments are allowed). Not all states allow deficiency judgments and have anti deficiency laws set in place, so check your state laws or consult with a real estate attorney. (Click here for a more detailed list of short sale pitfalls for seller)
Pitfalls for Buyer
- Time is the biggest factor involved in a short sale. The process can take anywhere from 90 days to 6 months, unless the seller has already pre-negotiated a price with the lender ahead of time.
- Uncertainty whether your offer will be accepted by the lender. Many times the lender counters the offer at a higher price. Remember the lender is trying to get the most money since they are losing money to begin with.
- Other buyers competing for the same house are also allowed to submit bids. The lender will usually choose the highest bid. So even if you were the first offer, the seller and their Realtor are obligated legally to present all offers to the bank. It is ultimately up to the bank to choose or not choose one.
Pitfalls for Lenders
- Lender is losing money by taking a reduced sum on the borrower’s loan balance.
- Lender must pay the closing costs, commissions to any brokers if a Realtor is involved, taxes and homeowner association dues if applicable.
- Buyers walk away from the deals prior to the lender approving the transaction.
- Lender may end up having to foreclose on the property. Average foreclosure costs the lender approximately $50,000.
- If you are in the process of Foreclosure or may be facing Foreclosing soon and need professional legal assistance, Submit your Case for a Free Review from a Foreclosure Attorney in your area to be aware of your options.
Content Related To Topic
Content Related to Topic
- How A Short Sale Works
The process and rules of Short Sales. - Short Sales and Defiency Judgments
The legal effects of Defiency Judgments in the process of Short Sales - Anti Deficiency Laws
Same States have laws set in place against Defiency Judgments
