The lender agrees to release the lien and accepts less than the unpaid balance on the mortgage. The unpaid balance, or deficiency, that the lender assumes does not necessarily release the borrower from responsibility. Unless the borrower is specifically released, in writing, some lenders will pursue the borrower for repayment of the deficiency.
What makes a short sale such a popular alternative to going through with a foreclosure is the reduction in fees paid by the property owner including commission fees. For starters, the owner needs to have a qualified real estate professional perform a comparative market analysis (CMA) on the home to determine its value in relation to what is owed. Given the drop in home values over the past four years, a home may be worth less than what is owed on the property. This is part of the justification for a short sale.
Typically, a short sale Long Beach can be closed in two to three months after the sale package is submitted to the lender. Nationally, short sales have been completed in as little as one week or taken as long as a year to close. A lot depends on what is involved to putting a proper short sale package together for the lender. A package contains the completely signed buyer and seller purchase agreement, the seller's financial records, and the owner's hardship letter, past tax returns and bank documents. The hardship letter is particularly important because it details why the owner is unable to pay off the deficiency and serves as the foundation for justifying approval of the short sale.
There are two drawbacks to a short sale. First, it becomes a black mark on the borrower's credit score. Secondly, the IRS may view the forgiven debt as reportable income. There are also no guarantees that a distressed home will qualify for short sale. In many cases, lenders view proceeding with foreclosure as the more financially sensible alternative. In other cases, the owner simply cannot qualify for a short sale.
It is difficult to determine how many of the 3,360 homes sold in Long Beach during the past year were short sales closings. However, there are currently 603 residential properties in some stage of foreclosure on the Long Beach real estate market. At the same time there has been an 11 percent reduction in the inventory of properties in this market. This is encouraging news because it indicates that buyers are looking for deals and short sales are usually a great choice.
For Long Beach home sellers, short sales are not fun. The events that lead up to a family loosing their home and going through foreclosure are stressful, painful and sad. Short sales provide a way for families to come out of foreclosure unburdened and with dignity.
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