The Short Sale of a Home Explained
A short sale is the sale of a home for net proceeds less than the balance of the outstanding mortgage. A short sale must be approved by the mortgage lender because the lender will lose money, and be “short” the difference between the net proceeds of the sale and the mortgage loan amount.
Short Sale vs Foreclosure
A short sale is an attempt by an owner who is underwater on their mortgage to sell their property before a foreclosure takes place, with the bank’s approval. If the owner does not get permission from the bank to execute a short sale, or does not execute one in time, then the property will be foreclosed on.
Once a foreclosure happens, it’s all over for the owner and the property is either sold at auction to the highest bidder, or if there are no bidders the bank takes the property onto its books. Properties that are not sold at auction and which go on banks’ balance sheets are called real estate owned (REO) properties.
Pro Tip: Want to learn how to buy a foreclosure property? Read our guide on buying a foreclosure and why buying REO properties is much easier than buying a short sale, assuming you can source inventory.
How Long Does a Short Sale Take?
A short sale can take up to four to six months if the owner attempts to sell after missing their first mortgage payment because the average time between missing your first payment to foreclosure is approximately four to six months.
However, a short sale can be negotiated prior to the owner missing a mortgage payment, which will enable the seller to have more time to negotiate and close a short sale.
However, you have to be careful in some states like Massachusetts where some offer forms may ask the buyer to sign. You should be very careful about signing any sort of offer form, regardless of which state you are buying property in. That’s because a signed offer form simply invites legal challenges should the transaction go sour.
We mention Massachusetts because of a well-known court case, McCarthy vs Tobin, where a seller and a buyer had both signed a standard offer to purchase form used by the local Realtor association. The form contained familiar contract language: “NOTICE: This is a legal document that creates binding obligations. If not understood, consult an attorney.”
The seller accepted another offer the same day that the buyer delivered a signed contract and an earnest money check. Typically, contracts are not binding at all until all parties have fully executed the contract. However, in this specific case even though the seller had not counter-signed, Massachusetts’s courts ruled in favor of the buyer.
Let this court case in Massachusetts be a warning to buyers and sellers in all states on just how dangerous it is to sign anything. Because an otherwise non-binding offer or letter of intent can be construed as binding if signed.
Pro Tip: Can a Realtor lie about multiple offers on a house? Despite state and local laws and regulations and Realtor association codes of ethics, it’s easier than you think. Read our article to learn more and how to protect yourself.
Read the Full Article: https://www.hauseit.com/whats-a-short-sale/
Disclosure: Hauseit (https://www.hauseit.com) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).
