A short sale is when the real estate sale proceeds fall short of the balanced owed on the property’s loan. This happens when the borrower is unable to pay their property’s mortgage. Instead of penalizing the mortgagor, the lender agrees to sell the property at a moderate loss. This is an advantage to both parties as it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. Clients in Boulder ask this all the time and no, this may not release the mortgagor from their deficiency. Neither foreclosure nor a short sale leaves you free and clear.
Definition made simple of foreclosure: when the borrower is legally removed as owner to their home. Ownership is terminated due to late payments (default). The property is sold at a public auction. Proceeds go to payment of the balance. When the bank buys the property at the auction, it is then put on the market.
If it’s right for your situation, a short sale would occur before the home goes to auction. A Realtor lists the home in hopes of selling and presenting an offer to the bank before the sale date. This date can be extended while the home is listed. Two basic scenarios: 1) Home receives an offer and the bank accepts = no foreclosure. 2) Property receives no offers or the bank rejects offers = home goes to auction & foreclosure.
This is important whether you’re a home buyer, seller, or agent; on July 30th 2009, the new Housing and Economic Recovery Act (HERA) laws will go into effect. And Wells Fargo Bank states that this could impact your closing date, so read on.