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Quick Guide: short sales

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Short sales are presented to troubled homeowners as a way to avoid foreclosure, but not a lot of people understand exactly how they work. Understanding the process, however, can help a homeowner to get out of a debt that they can no longer afford and/or get their financial situation back in order.

Generally speaking, a short sale is an agreement between a homeowner and his or her bank to sell a home for less than the amount owed on a mortgage. The bank agrees to accept the amount of money that the home sells for instead of having the homeowner fully pay off the mortgage. For example, if a person owes $500,000 on a home that can only be sold for $250,000 a short sale would allow that person to sell the home for $250,000. After this, the homeowner would no longer owe any money to the bank.

Because it is more likely to get a better price by allowing a short sale than by going through the foreclosure process, many banks are willing to work with a homeowner on getting a short sale. A homeowner will often be required to work with a realtor, and keep the house in good condition so that it appeals to potential buyers. Many short sale agreements also require the homeowner to keep power and water to the home. Most importantly, a homeowner must be prepared to move quickly if the house sells. Usually a homeowner is given thirty days or less to find a new place to live.

While the exact short sale process will vary between banks, a successful short sale can be a good way for a homeowner to avoid going through a foreclosure. As long as the bank agrees on a selling price, the homeowner in a short sale will be able to walk away from the housing debt. This is not always the case if a homeowner goes through a foreclosure. Furthermore, a short sale typically does not effect a homeowner’s credit score and credit report as badly as a foreclosure does. This means that going through a short sale will allow a person to buy a home again much sooner than if they go through a foreclosure.

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