The U.S. home prices surged higher; the stock market experienced record-breaking uphill climb. This all happened during a Great recession period, in 2007. Despite the higher interest rates on home loans, potential buyers invested in townhouses, apartments, and residential dwellings, planned to sell the properties for a hefty profit after a few months.
In that period, many Americans signed the mortgage deals they could not afford. Conversely, the U.S. real estate market dramatically dipped in recession in the year 2008, plummeting home values across the country. Consequently, many homeowners found themselves underwater; around 2.8 million houses experienced unanticipated foreclosure in 2009.
Note that, foreclosures can drastically affect the credit score that a person cannot get another mortgage for the next seven years. To avoid foreclosure, attempting a short sale is perhaps the most suitable option.
What Is A Short Sale?
A short sale in a real estate is a process in which a home owner buys or sells a property for less than the balance homeowner owes on the home loan. When a seller needs to repay the mortgage lender, the loan officer or bank agrees to a short sale to recover a certain amount of the loan owed.
While short sales were more prevalent during the Great Recession, they have become quite rare as the economy improves. Unlike the period before the recession, short sales today are far less common; it only makes up 1% of home sales. In the U.S., the value of housing markets is on the rise, with only 9% of homeowners reported as underwater in 2018.
For a short sale, however, the property seller has to seek mortgage provider to waive off the remaining amount. If they approve, the seller receives the following advantages of a short sale:
- Prevent foreclosures
- The bank or lender recuperate a certain amount of the loan principal
- Sell home on the fair market price
Undoubtedly, a short sale is an intricate process and possibly takes months in approval. Moreover, a short sale can only be completed when a lender accepts the buyer’s offer.
The Short Sale Process
With formally designating the property as “short sale,” a home seller puts the house on the real estate market. After a potential buyer agrees to make an offer, the homeowner contacts the bank or lender to complete a process of application for short sale status on the property. Although there is no guarantee that the mortgage lender will approve the request, a short sale ensures to eradicate several hassles associated with the mortgage.
Homeowners involved in short sales might require to file several documents to the respective mortgage lender. These also include a hardship letter entailing the reasons for why a property owner cannot repay the mortgage, along with filing records such as tax returns and pay stubs. Next, the bank or loan officer will review the application, hire an appraiser for home value estimation, and then approves the short sale request.
Besides other benefits, a short sale enables you to avoid foreclosure. As mentioned earlier, after foreclosure, you would need to wait for 7-years to get another mortgage. Considering that, a short sale is one of the most suitable options to prevent foreclosure. Since a short sale process involves complex real estate transactions, work with an experienced realtor in Houston for a successful short sale.