So, what exactly is a short sale? We’ve all heard the term, but not many people know just exactly what it is. Well, a short sale is what happens when a homeowner finds themselves in a complete financial mess, and then decide to sell the property as a short sale; or, for less than the home is actually worth.
The buyer is often of a 3rd party, and all of the profit goes to the lender who lent the borrower money for the mortgage. Either the lender lets go of the difference (the amount you still would owe)…or, they get a judgment against you from the court, that will force you to pay the difference. In some states, the law demands that the lender forgive the amount, and not make you pay the difference.
You’ll have to go and talk to your bank lender about whether or not you can get a loan modification. This will let you stay in the house, and have time to get more money together, if you are wanting to avoid a short sale. Another possible option for staying in your home arises if you have private mortgage insurance (PMI).
Many homeowners who purchased homes with less than 20% down were required to purchase PMI with their homes. If the PMI company thinks you have a chance at recovering from your current financial situation, it may advance funds to your lender to bring your payments up to date. Eventually, you’ll have to repay the advance. See: as well as a more detailed description of, What is a Short Sale?
Either way, you definitely need to converse with a lawyer. If you try to handle this type of transaction yourself, you’re going to make lots of mistakes and end up in a bigger mess than you’re already in! You’re also going to want to add how much selling the house is going to cost you. You want to get as much money for it as you can, since you’re already going to be making a loss.
Understand that short sales take much longer than selling a house through the traditional way (with a realtor). Usually, short sales tend to fall through. People back out, and all sorts of other situations could arise. Because of this, you must not think of a short-sale as a sure thing. It’s possible that you won’t get the house sold, even if you do a short sale. Or, that you won’t sell it in the timeframe you need to in order to avoid punishment from the bank. For more information, read this article on How to Navigate a Short Sale.