So, what exactly is a short sale?
Put simply, a short sale is the sale of a home in which the amount owed to the lender(s) is more than the amount that the home can be sold for. Instead of the homeowner having to bring in money to complete the sale, the sale is completed through negotiations with the existing lender(s). The lender(s) agree to accept less than the full amount owed to satisfy the debt and allow it to be paid off “short.”
Put even more simply, a short sale is a real estate transaction that requires an approval from the lender – period.
It’s not some complicated legal process that requires paying an attorney. Note: Beware of that scam.
Now don’t get me wrong. Short sales are most definitely a different animal than a regular real estate transaction because once you stop making your mortgage payments, the clock starts ticking and the hangman starts preparing his noose.
You’ll get one shot to do a successful short sale. If your agent is inexperienced at short sales, makes mistakes, gives up, slacks off, drops the ball, or simply doesn’t know how to negotiate with banks, you’ll wind up being foreclosed on and believe me, you do not want to go through a foreclosure.
A foreclosure will devastate your credit. Your credit score can be lowered by as much as 300-400 points (or more) and you’ll be hounded day and night by your lender. Even worse, you’ll have tremendous difficulty getting credit cards, auto loans or even renting a home or an apartment for the next 7 years.
Your home will be repossessed by the bank and the bank will sell your home, either at auction, or more likely through a Short Sale Realtor in San Diego (or in a city where you reside), with a large sign out front that says “Bank Foreclosure”.
Here’s something important you need to know about short sales, depending on whether the loan on your home is a “purchase money” loan or whether you did a “cash out” refinance after your purchase, you either have a “non recourse” or a “recourse” loan. This makes a BIG difference as to whether or not your lender can go after you to repay your debt, even after your home has been foreclosed on.
A non-recourse loan is…
A loan agreement under which the collateral securing a loan is the ultimate source of repayment, and the lender cannot hold the borrower personally liable in the event of a default. The lender can seize (and sell) the collateral but cannot seize non-pledged asset or property.
A recourse loan is…
A loan agreement under which a borrower gives an undertaking to repay a debt even if the funded asset (acquired with the loan proceeds) cannot be liquidated to cover the loan amount. In case of a default, the lender can seize and sell the funded asset as well as the borrower’s un-pledged assets or properties.
