A short sale is much like a normal real estate transaction, but there are a handful of factors to keep in mind that can complicate a short sale.
First, remember that the short sale process usually starts after the bank has already begun filing notices of delinquency. That's one of the early steps in the process that starts the clock ticking toward foreclosure. If your house -- even at a lower, short sale price -- stays on the market without attracting a buyer, enough time may pass that the bank will proceed into foreclosure. It's critical that both you and your real estate agent understand the bank's time limits before starting the short sale process [source: EForeclosureMagazine.com].
After the short sale is completed, you'll likely feel a huge sense of relief -- the specter of foreclosure is no longer hanging over your head. But you may still face penalties stemming from the delinquent mortgage if the short sale doesn't cover the entire amount owed on your mortgage. If the remaining amount is low enough, the bank will often decide it can't be pursued profitably in court. In this case, the bank would write off the remainder. This would leave a negative mark on your credit but would save both you and the lender the time, cost and hassle of a delinquency suit.
There are cases, however, where the bank will decide to pursue the remaining amount you owe on the mortgage. While this will leave you liable for much less than the original delinquent mortgage, it means you're still vulnerable. And again, while you won't face the credit hit that comes from a foreclosure, the deficiency judgment that the lender is pursuing will make it harder for you to borrow money in the future [source: Experian].
The "lifeline" analogy is fitting when considering a short sale; the process can save you from the nightmare of a foreclosure. But like a line thrown out in a rough sea, there's not a watertight guarantee that you'll reach it and be pulled to safety in time. A short sale may minimize the damage you sustain from an unaffordable mortgage, but you're likely to still face expenses -- and credit damage -- from the situation.
To learn more about short sale and foreclosure, check out the links below.
- All About Real Estate Short Sales. "Benefits of Buying a Short Sale." (March 23, 2011)http://www.realestateshortsale.net/buying-short-sale.html
- Christie, Les. "You lost your house -- but you still have to pay." CNNMoney. Feb. 3, 2010. (March 24, 2011)http://money.cnn.com/2010/02/03/real_estate/foreclosure_deficiency_judgement/
- Dempsey, Bobbi. "10 steps to 'short sale' buying." Bankrate.com. 2010. (March 24, 2011)http://www.bankrate.com/finance/money-guides/10-crucial-steps-to-short-sale-buying-1.aspx
- EForeclosureMagazine.com. "How to Qualify for a Short Sale." (March 24, 2011)http://www.eforeclosuremagazine.com/mortgage/how-to-qualify-for-a-short-sale
- Experian. "Impact of mortgage 'short sale' on your credit report." May 14, 2008. (March 23, 2011)http://www.experian.com/ask-experian/20080514-impact-of-mortgage-short-sale-on-your-credit-report.html
- Foreclosure.com. "Real Estate Short Sales." (March 23, 2011)http://www.foreclosure.com/shortsales.html
- ForeclosureFish.com. "Who Can Sue You for a Deficiency Judgment ... And Will They?" Feb. 27, 2008. (March 25, 2011)http://www.foreclosurefish.com/blog/index.php?id=412
- Foreclosure Questions. "How does the Foreclosure Process work." Feb. 14, 2011. (March 24, 2011)http://www.foreclosurequestionsguru.com/
- Foust, Dean. "The new exit strategy: A short sale." Bloomberg Businessweek. March 5, 2007. (March 24, 2011)http://www.businessweek.com/the_thread/hotproperty/archives/2007/03/the_new_exit_strategy_a_short_sale.html
- Freddie Mac. "Avoiding Mortgage Fraud." (March 24, 2011)http://www.freddiemac.com/avoidfraud/
- National Association of Realtors. "Field Guide to Short Sales." March 2010. (March 25, 2011)http://www.realtor.org/library/library/fg335
- Hartley, Daniel. "The Impact of Foreclosures on the Housing Market." Federal Reserve Bank of Cleveland. Oct. 27, 2010. (March 25, 2011)http://www.clevelandfed.org/research/commentary/2010/2010-15.cfm
- Rapoport, Gary. "Who Benefits From A Short Sale Real Estate Transaction?" (March 23, 2011) http://www.garyrapoport.net/who_benefits_from_a_short_sale_real_estate_transaction.htm