For some sellers, short sales are an alternative to foreclosure, if they are unable to sell their property to get enough to cover the loan balance due and they can no longer make the mortgage payments, or need to move or liquidate the home for one more reason.
Identification
When a home owner sells property for less than the balance due on the home, it’s a short sale. Yet, just because the sale price is short of the loan balance, this doesn’t indicate that the home is selling for less than the current fair market value of the property. Fair market value in real estate is an estimate of what a ready, willing and able buyer would pay for the property in the current market. To ascertain this, property professionals utilize the average sale prices of comparable properties, which marketed within recent history, like within the last six months or sooner.
Function
For many distressed real estate owners, the federal Making Homes Affordable Program encourages short earnings over foreclosures. The rise in short sales happened after property values dropped across the nation, causing land owners to lose equity, leading in some loans going”upside down,” meaning that the property owner owed more than what the land was worth.
Significance
Before proceeding with a short sale, the borrower should obtain permission from the lender to record the property at a short sale. Lenders normally require borrowers to prove, typically with the help of a real estate professional, the current market value is less than the loan amount. This may involve obtaining an appraisal or comparative market analysis on the property.
Factors
Even though a lender usually requires the borrower to ascertain the estimated market value of the property, this doesn’t guarantee that the actual listing price will probably be at or below fair market value. Even though a lender is not technically the seller in the transaction, the lender finally determines to accept, reject or counter an offer. Just like a conventional real estate transaction, it’s possible for the home to sell for less, more or in the fair market value.
Characteristics
Following the short sale, the lender either forgives the loan amount or issues a deficiency judgment against the borrower on the unpaid balance. In some instances, the borrower accounts for income taxes on the forgiven amount. An agreement by the lender to proceed with a short sale is not a deal to forgive the unpaid balance of this loan.
