Short Sales in Florida
Short Sale: Definition And Explanation
A short sale occurs when a homeowner in dire financial trouble sells their home for less than they owe on the mortgage. The lender of the original mortgage gets all of the proceeds of the sale, and either forgives the difference or gets a deficiency judgment, which requires the original borrower to pay what’s left over.
Although this seems like a less-than-ideal arrangement for the lender, especially if the difference is forgiven, it’s often a preferable alternative to foreclosure. A short sale is a way for a homeowner and their lender to get out of a difficult financial situation by taking a loss, so it’s often possible for a buyer to profit from this transaction. However, buyers should be aware that these transactions are not always good investments.
Once the short sale goes through, the lender receives the profit of the sale to settle the loan. There is a tradeoff to this win-win, however. The short-sale process tends to be more time consuming and labor intensive than the traditional buying process.
Are short sales hard to buy?
If you are looking to scale down, move or start fresh, we recommend you consider a short sale. The short sale option applies for families living in “underwater” homes, or homes that are valued at less than the amount of their current mortgage. If a bank agrees to a short sale, a borrower can sell the home back to the bank for less than the amount due on the mortgage.
A home goes into short sale when the homeowner realizes that they can no longer afford to keep up with their mortgage payments. Instead of waiting for the bank to foreclose on the home, the homeowner initiates the short sale process by submitting an application to the lender.
There are two critical factors that the lender will consider when deciding whether to approve a short sale:
The home has to be worth less than what the homeowner owes on it. The lender will want to review recent sales of comparable properties to make sure this is the case.
The seller must be able to prove financial hardship. They have to show that they don’t have the income or assets to pay back the rest of the outstanding
When Does A Home Go Into Short Sale?
Short sales and foreclosures are both processes that occur when homeowners are struggling to keep up on their mortgage payments, or if they find that their mortgage is underwater. An underwater mortgage is when a borrower owes more money than the home is worth. In both cases, the homeowner loses possession of their property, though the circumstances and repercussions are different.
The extent of the seller’s control is a significant difference between these two processes. In a short sale, a seller will decide to submit a financial package, seeking a lender’s approval to sell the property for less than the amount they owe on it. Therefore, the seller enters into this process voluntarily, which is not the case for foreclosures.
Once a lender approves a short sale, a seller is in charge of selling the property. However, the lender is responsible for the negotiations and determines whether to accept or reject buyers’ offers – as it is the lender who is trying to recoup costs.
On the other hand, a foreclosure is a legal action taken by a lender to seize a seller’s property after they fall too far behind on their monthly payments. Although both processes can negatively impact a seller’s credit, a foreclosure can have a far more damaging impact on a seller’s FICO® Score and how long they have to wait to get a mortgage again. Furthermore, the foreclosure process can be expensive for the seller (and lender) and ultimately force them to file for bankruptcy in some cases.
Short Sale Vs. Foreclosure
Short sales and foreclosures were much more common during the financial recession of 2008. The buyer is more likely to make a profitable trade during a declining market than an advancing market. This is due to the property's value being less than what is owed.
In contrast, the seller will take what they can get because they don't know if the market will increase if they wait. As the economy has improved and the housing market has recovered, short sales have become less commonplace. However, they’re still an option.