Finance

A Brief Guide to Short Sales

While short sales are not ideal outcomes for mortgage rates, it’s important to be aware of the ins and outs of the sometimes-practiced event. Here, we’ll give you the basics on short sales and how they affect lenders and borrowers.

A Way to Mitigate Risk
When a borrower is facing imminent foreclosure, lenders have the option to sell the house for less than what is still owed on the loan. Some lenders choose this option to cut their losses, since it can be difficult to press on a borrower who simply can’t come up with any money.

This option is often attractive to lenders and borrowers since they can avoid foreclosure and the hefty fees that go along with foreclosure. Most of the time, short sales are structured so that the borrower still owes money, even after the short sale has completed.

Supposed Benefits for Both Parties
First of all, the lender has to agree to downplay loan balances based on a borrower’s inability to pay. When the borrower then sells the property, he or she immediately forfeits all of the funds to the lender. This way, the lender loses less money, and the borrower doesn’t get such a nasty blemish on his or her credit report.
Usually, it’s possible to conduct a short sale in a much briefer period of time than a foreclosure.  Most lenders have in house loss mitigation departments wherein actuaries and other financial professionals evaluate the risks of short sales. So, expect lenders to be fully prepared whenever a short sale is proposed.
Short sales can be a good way to avoid foreclosure. Be sure you read the fine print, and take advantage of the opportunity if it means no one will foreclose.