What is a short sale?
A short sale is a sale of real estate in which the seller has come to the realization that loan payments can no longer be made to the lender. Rather than go through foreclosure, the seller’s goal is to sell the property for less than what is owed on the property, or short of the actual debt secured by liens against the property. In some cases, the seller will contact the lender for permission to sell the property. In other cases, the seller will list the property as a short sale with the hope that the lender will accept a subsequent buyer’s offer.
It is vital for prospective buyers know whether the sale is a lender approved short sale or not. Without lienholder (lender) approval, the transaction can be prolonged, if not, impossible.
It is also important to know that in a short sale transaction, the seller may accept an offer, but it is the lienholder (lender) who must accept less than the amount owed on the debt in order for the sale of the property to be completed.
A short sale also has a derogatory effect on the seller’s credit score. Lenders will report any short sale and subsequent amount less than what is owed. Like a foreclosure, a short sale is considered a derogatory item. It may remain on your credit report for up to seven years. However, lenders have made allowances for such recovery in a shorter time.