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What is a "Short Sale"?
it's common these days to find homeowners who are "upside-down" on their mortgages- their home values have dropped and are now worth less than the amounts they owe their lenders. In real estate, a short sale is a sale of real property in which the proceeds from the sale fall short of the balance owed. In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the homeowner. Extenuating circumstances influence whether or not a bank will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower's financial situation.
A short sale negotiation is all done through the bank's loss mitigation or workout department. The homeowner sells the mortgaged property for less than the outstanding balance of the loan, turning over the proceeds of the sale to the lender, sometimes- but not always- in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove a proposed sale. Typically, a short sale is executed to prevent foreclosure, but the dedcision to proceed with it is predicated on the most economic way for the bank to recover the amount owed on the property. Ofter a bank will allow a short sale if it believes that it will result in a smaller financial loss than foreclosing- there are carrying costs that are associate with a foreclosure.
A bank will often determin the amount of equity- or lack of- by establishing the probable selling price from a professional property valuation. For a homeowner, the short sale advantages include avoidance of a foreclosure on his or her credit history and minimizing or eliminating a monetary deficiency judgement. On the other hand, a short sale is typically faster and less expensive that a foreclosure for a lender.
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