How Does A Short Sale Work ?
A short sale is usually undertaken when the homeowner is sure that he will have to face foreclosure. |
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So, rather than facing the ignominy of a foreclosure, the homeowner decides to minimize his losses by opting for a short sale. However, the sale has to be approved by the lender. Usually the house is sold for a price that is lower than what the homeowner owes on the mortgage.
So, how does a short sale work? Usually buyers actively try and locate homeowners who could be interested in a short sale. This information can be gleaned from the public records where foreclosure notices are posted. Sometimes, homeowners themselves actively seek potential buyers through a realtor.
Once the homeowner and the buyer meet, they have to work together. The first step would be trying to determine a fair value for the house. Usually, the buyer offers either to pay the rest of the mortgage amount, or an amount that this less than what is due on the mortgage. A homeowner does not make a profit from this sale. Once, the homeowner and the buyer agree on the price, a contract has to be prepared. Make sure that a real estate attorney experienced in short sale prepares this contract.
After that the buyer has to get in touch with the lender. The buyer has to send a letter to the Loss Mitigation Department spelling out the offer he has made to the homeowner. At this point the lender will review this offer. It usually takes around 30 days to 90 days to get a response from the lender. It is only then will the buyer know whether his offer has been accepted or rejected. Once the lender accepts the offer, ensure that they do not sue the homeowner for the difference in the sale price and the pending amount of the mortgage.
Sometimes, the homeowner has to pay taxes on the difference between the sale price and the balance amount owed on the mortgage. Make sure you consult a tax attorney in case you are the owner. If you are the buyer, make sure you check on the property thoroughly. Many properties can have a two or more mortgages. Just because you pay off the first mortgage, it does not mean that you have removed the other liens from the property.
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