Short Sale A Win Win Solution for Unmanageable Home Loans
Millions of Americans who have huge home loans to pay off are now finding themselves in a no-win situation. This is because their repayment capacity has been eroded by reducing salaries and interest rates. On the other side, home values have dipped to all time lows. For those who find themselves struggling to repay home loans that are far bigger than the actual resale value of the asset, a short sale is a good solution.
What is a short sale?
Simply put, a short sale happens when you sell the home for an amount that is lower than what you actually owe to your home loan lender. Clearly, your lender needs to approve the deal before you can go ahead with this kind of sale. Once the sale is completed, the proceeds are transferred directly to the lender instead of you, the seller. The difference between the actual loan amount you owe and the sale proceeds may be written off by the lender or he may require that you pay it off within a specific time period.
A win–win solution for all parties
A short sale is a winning solution for all the three parties in the transaction- the seller (you), the lender and the buyer. For you, the borrower/ seller, a short sale is a great solution because you can get rid of your debt without letting your property foreclose or declaring bankruptcy. A short sale does not ruin your credit score unlike a bankruptcy or foreclosure. You still end up with the loss of your home with a short sale but your debt is either completely paid off or you are left with a much smaller, more manageable debt to pay off.
In many states, the difference between the home sale price and loan outstanding must be legally written off after a specified period. For the buyer of your property, the home is a very cost effective purchase because he/ she is acquiring it well below the price that you paid for it.
The lender is the party who faces the biggest loss in this deal. However, most lenders still prefer to approve short sales rather than foreclosing on the property, which is a long winded and expensive affair. A short sale can be completed quickly and the money recovered as soon as the sale goes through. In addition, as opposed to foreclosure, with the short sale the lender does not end up with property that he will have to sell to recover his loan.