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Foreclosure 101: A Review on Short Sale

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By : Cassiano Travareli    99 or more times read
Homeowners facing foreclosure actually have lots of options available to them to stop it. One of the favorite options is the short sale. Although a short sale transaction is rather simple, there are still quite a few homeowners who are confused of how it works. In order to finally understand, here is a very simple explanation.

For starters, there are three people involved – the seller, who is the owner of the distressed property, the mortgage lender or holder and a buyer. The term “short sale” comes from the fact that the seller/homeowner is suffering from an upside down mortgage. This means that the seller owes more than what his home is currently valued at and could not pay the whole mortgage debt due to lack of money - thus, short in cash.

Because of this, the seller, even if he sells the property, will still owe the mortgage lender some money. This is where the agreement comes in. The mortgage lender must agree to forgive the difference of the sale so that both parties will not need to proceed with a foreclosure.

Keep in mind that the seller must show that he is unable to pay the difference of the sales proceed and the mortgage debt. If the seller can pay, the lender will not approve the short sale.

Based on this, you can actually categorize the types of sellers:

  1. A seller who is not short of cash and not suffering from an upside down mortgage. He could have lost some equity but not enough that he cannot pay his entire mortgage debt if the property was sold.

  2. A seller is short in cash but not in foreclosure. This only means that he is still able to pay his monthly mortgage dues but can not pay off his entire mortgage debt.

  3. A seller is in foreclosure but not short in cash. His lender will not approve a short sale and he will be forced to sell the house to pay off the entire mortgage debt.

  4. A seller is in foreclosure, short in cash and has an upside down mortgage – the perfect candidate for a short sale transaction.
Cassiano Travareli has been educated in the finer points of the foreclosures market over 5 years.

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