A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $500,000. The market value of the home is $350,000.
Long story short, the lender accepts the offer for $350,000 and the home is sold.
That's a short sale.
Why are lenders so eager to take such a huge discount? Banks do not like bad loans. If they see an opportunity where they can sell the property without the huge loss of a foreclosure, they will do it. Some lenders report that if the home goes into foreclosure by the time the home actually closes with the new buyer, the lender will be lucky to net 50% of the original loan balance.
What is the bottom line from the lenders perspective? They are in the business of lending money, not owning homes. If they can accept a short sale offer and rid themselves of the bad loan AND net more, vs the home going into foreclosure, they will do it every time. It's simply smart business. Time is not on your side when you are considering a short sale.
Visit my website at www.dlamangan.com for a copy of my free eBook "Should I Short Sale My Home".
I am a licensed Real Estate Agent in Washington DC and Maryland.
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