Though they are not necessarily an ideal situation for sellers to find themselves in, short sales can be beneficial to financially distressed sellers looking to avoid foreclosure.
What are the benefits of a short sale for sellers?
- Seller can avoid foreclosure. A short sale is one of the last options that a seller has before going into foreclosure, which is more detrimental to their credit.
- Save on common fees. Sellers can avoid paying common fees, like the cost of a realtor’s commission if they sell their home with a short sale.
- Possible debt forgiveness for the seller. In certain cases, the lender will accept the money made from the short sale and forgive the seller’s remaining debt. It is important to note that, in some cases, a short sale will not eliminate a seller’s debt if the lender chooses to get a deficiency judgement against the seller for debt owed.
- No barrier to re-enter the housing market. With a short sale, sellers are eligible to re-enter the housing market if they wish to purchase a new home with an FHA loan, in some circumstances.
What are the drawbacks of a short sale for sellers?
- No negotiation power. When a seller decides to sell their home through a short sale, they are relinquishing any negotiation power they may have had because the sale is now in the lender’s hands.
- Loss of profits. Because the seller still owes money to the lender in the case of a short sale, all the profits go to the lender.
- Damage to credit score. Though the damage to the seller’s credit is much less damaging than in the case of a foreclosure, the seller will still experience a negative effect on their credit.
- Delay in obtaining another mortgage. When a seller goes through a short sale, they are required to complete a waiting period anywhere from 2-7 years before they can qualify for a new mortgage.
- Deficiency judgement. There are some instances when the lender will choose to sue the seller for the remaining money owed on the property in what is called a ‘deficiency judgement.’ If the lender chooses to do this, the seller will experience a hit on their credit, like that of a foreclosure.
Are you looking to sell your home through a short sale? To learn more, contact a VanDyk Loan Originator today!