Short sales are real estate sales in which the profits reaped from selling the property do not equal the amount of debt that the property owner owes on the property, usually in relation to mortgage debt or lien debts on the property. These are sometimes known as “preforeclosure” sales, as they often occur before the bank or lending institution has a chance to foreclose on the property. As such, the homeowner can usually avoid a foreclosure proceeding, reducing the overall costs of selling or transferring the property.
The remaining unpaid balance owed on the loan is called a deficiency. Short sales do not necessarily release the homeowner from their obligation to repay the missing amounts on the loan. In many cases, a deficiency judgment may be required in order to sort out the parties’ obligations regarding the debt amounts.
Overall, short sales may result in better credit scores than foreclosures. However, there are situations wherein a short sale can have a negative effect on one’s credit the same as if there had been a foreclosure. In serious cases, short sales can create additional legal matters and possibly even legal conflicts with creditors and other parties. Of course, the likelihood of additional legal issues entirely depends on the circumstances of the individual case. Also, short sales can sometimes affect a person’s ability to obtain another mortgage in the near future.
Some factors in a short sale that might affect a person’s credit include:
- Whether there is more than one mortgage lien on the property
- How many months behind on payments the borrower is
- The purchase date and original purchase price on the home
- How much is currently owed on the mortgage
- Condition of the property (i.e., whether it needs any repairs or alterations)
- Whether the person has existing missed payments on other or previous properties
- Other issues with the property such as unpaid taxes, city zoning fines, and unpaid utility bills
- Whether the short sale is related to a divorce proceeding, and whether or not the previous spouse is willing to cooperate regarding paperwork
- The borrower’s previous interactions with the lender, such as ignoring correspondence from the lender
Thus, property owners who are considering a short sale should first consider the various consequences and effects of such a decision. Doing so can help a property owner avoid further legal issues and lawsuits.
Short sales can sometimes take longer to complete than an actual foreclosure proceeding. This is because there may be various approvals that need to be completed, and these can take 2-3 months or longer. Also, short sales can sometimes be unreliable, and can often “fall through” in the middle of a sale if a potential buyer decides to back out. Lastly, the recent spurt in short sales has also given rise to various short sale fraud schemes, with a number of victims finding themselves in even worse financial and legal trouble than if they had not tried to avoid foreclosure.
Short sales can often be fairly complex real estate transactions. They can also have many far-reaching effects in terms of one’s credit. You may need to hire a real estate lawyer in your area if you have any questions or concerns regarding short sales. Your attorney can help research the laws in your area to determine how a short sale might affect your financial background. Also, if you need to file a lawsuit or attend any legal proceedings, your lawyer can provide financial assistance as well.