April 9th, 2008 1:24 PM by Mary Schwarz
If you have been house hunting over the past 12 months you have certainly run into a home being advertised as a short sale. What exactly does this mean? A short sale is when the seller cannot sell the home for the amount he owes on the mortgage. For example, someone owes $155,000 on his mortgage, but the current market value of the home is $145,000. There is a $10,000 gap in the payoff. Often a lender will approve a short sale to prevent foreclosure.
For the seller, the issue is the $10,000 gap. Who pays that debt? That varies by bank. Either the bank will forgive the shortfall or file a deficiency judgement against the seller requiring eventual payback. This is certainly a better option than being foreclosed upon which drastically lowers your credit score for several years.
For the buyer, this may be an opportunity to "get a deal" or may not. Typically the house still sells at market value or maybe slightly below. And in most cases the bank is not willing to negotiate any inspections or repairs. As in the case with a true foreclosure, bank responses are often 7-10 days out. It is usually not a speedy process.
Each short-sale has a different set of circumstances but ideally will prevent foreclosure. If you have any questions about pursuing a short sale on your home or making an offer on a home in short sale status, give us a call at 314.239.9714.