Margaryta Booth Principal Broker

King Neptune Statue on the Boardwalk in Virginia Beach

Short Sales for Buyers

Short Sales: Seller approach

What is a Short Sale?

When a property needs to sell quickly a property is sold at a price lower than the amount the homeowner owes on the mortgage (short Sale), and the homeowner’s mortgage lender must agree to the “short” payoff. The short sale often happens just prior to a foreclosure, and a lender might accept a short sale in leu of going to auction. Some of the conditions are that the borrower cannot continue to make the monthly loan payment due to circumstances, does not have enough money to pay back the full balance of the loan and needs to move out of the property.

Why sell through a short sale?

A Homeowner might pursue a short sale if they can no longer pay the mortgage, are at or near bankruptcy, and need to move from the property. This will allow them to avoid a foreclosure, and may alter Bankruptcy plans. With a short sale, the impact on the homeowner’s credit record might not be as bad as a foreclosure in some circumstances.

What are the benefits of a short sale?

Home Owner/Seller: avoids foreclosure and receives another opportunity for a graceful transition into more affordable housing.
Mortgage Lender: mitigates its losses by avoiding the process of foreclosing and reselling the property.
A Buyer: Gets to purchases the property at a fair market value. The buyer also may avoid some of the risks of buying foreclosed properties.

What are the negatives of a short sale?

A short sale could take longer than a traditional resale because the lender has to approve the sale and the buyer must wait for the lender’s approval.
The property will be bought on an “as is” basis.
The approving lender will really agree to pay for any extras that a regular seller would normally agree to. This could mean higher closing costs for buyer. (For example, the buyer covers the cost for inspections and repairs).

What are the reasons the mortgage lender will not approve a short sale?

When the homeowner still has money to pay for the mortgage.
When the payout from the private mortgage insurance to the lender could reduce the loss enough to choose to foreclose the property.
The property title is not clear, possibly due to subordinate liens.
The homeowner has filed the bankruptcy.
The mortgage lender initially approved the short sale but the homeowner refused to make a contribution to help reduce the lender’s losses.

Why would a Buyer buy a property at a short sale?

A short sale by terminology simply means the amount of the sale is short of the money owed.  When the housing market crashed lots of houses were worth less than were owed due to the loss in value.  Property can loose value for a number of reasons and a short sale allows the new buyer to reset the value.   Keep in mind that most short sales are an as is property as no one involved is willing to put repairs into the sale.  Most short sales involve the new home owner doing the repairs after the closing date.  Yes the property is discounted for the repairs but this purchse is not for everyone, and a buyer should go into the sale fully aware of the timing and the repairs.