When you sell your house for less than you owe on your mortgage it is referred to as a “short sale”. This is one option available when you find you can no longer make your mortgage payments, and the outstanding principal balance on your mortgage is higher than the fair market value of your house. The offer must be submitted to your lender, along with a detailed statement of all the costs of the sale and any other items which must be paid when the house is sold. The short sale can only proceed if it is approved by the lender. In other words, the lender must agree to accept less than what is owed on the mortgage. In the current economic climate, short sales are occurring with greater frequency. When a homeowner cannot make the mortgage payments on his home, this option relieves the homeowner of the burden of those payments. The alternatives are often foreclosure by the lender, bankruptcy or, if the homeowner qualifies, a mortgage modification.
The buyer of a short sale property typically gets a good value, he buys the property at its fair market value, but pays less in a depressed real estate market than if the house were listed for sale by the homeowner – as the homeowner would have to seek a price that is sufficient to cover repayment of his current mortgage balance. When the market rebounds, a short sale buyer can typically sell the property for a significantly higher price than he paid. There are, however, a few things to keep in mind.
A homeowner seeking a short sale is typically in financial distress. The homeowner seeks a short sale because he cannot make his mortgage payments. The short seller will not have the resources to make repairs, and it is likely that maintenance and repair of the home have been deferred due to his financial situation. The short sale lender will be accepting less money than they are owed on the property, and the lender will be unwilling to make any repairs. The short sale buyer must therefore be prepared to purchase the home in “as is” condition. The buyer can expect to invest additional monies repairing the home after the purchase.
As a short sale buyer, you must be prepared to wait. The short sale process is a long one. The short sale lender determines the timing. The lender will require a home appraisal. It will require details of the sale from the seller, and it will usually take time to consider the offer and whether it will approve it. The lender sometimes proposes a counteroffer. It often takes months, especially if there are other liens or judgments against the property which need to be resolved or included in the monies paid at closing.
The attorneys at McLaughlin & Nardi can assist you with the short sale process. Contact one of our attorneys by e-mail or call 973-890-0004.