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Home > Selling Real Estate in New Hampshire > What is a Short Sale?

What is a Short Sale?

It's simple. A Short Sale is when a lender (a bank or credit union) and a borrower (an individual like you) enter into an agreement to sell a house for less than the amount of the mortgage owed. A borrower may decide to proceed with a Short Sale in lieu of foreclosure. It is typically not offered by lenders until all other efforts to keep the owner in the home have been exhausted. There are potential tax consequences with the process, so individuals contemplating a potential Short Sale should consult a real estate or tax professional prior to proceeding.

Why Bother?

A foreclosure can severely damage a borrower's credit score, which may prevent an individual from qualifying for competitive rate loans. A Short Sale can be far less damaging and may allow a borrower to qualify for another mortgage sooner than they would otherwise be able to. Short Sales also help neighborhoods; they do not contribute to the "ghost town" effect, a scenario where many homes go vacant in an area and cause property values to plummet.

A successful Short Sale releases the borrower from the primary loan and while it does damage the borrower's credit score, it is usually not nearly as severe as a foreclosure. Additionally, borrowers who successfully complete a Short Sale may be eligible to receive approximately $3,000 to offset moving expenses.

Why Would a Lender Choose Short Sale Over Foreclosure?

New guidelines have made Short Sales preferable to Foreclosures. Through the new program lenders have the power to determine what they are willing to accept when it comes to offers. It is also very typical that a lender's loss on a Short Sale is significantly less than they would otherwise incur with a Foreclosure, as it usually eliminates homes falling into disrepair and wasted payments to home owner's associations, utilities and insurance.

How Complex is the Process?

Previously the Short Sale process varied widely between lenders. The U.S. Treasury's Foreclosure Alternatives Program recently standardized much of the paperwork, documentation and guidelines surrounding Short Sales. In the past many potential buyers may have been discouraged by placing an offer on a Short Sale property due to lack of a reasonable response time. Now, mortgage lenders have approximately ten business days to respond to offers.

Is Foreclosure Still an Option?

Yes, the foreclosure process may still move forward even if the Short Sale process has been approved. However, it cannot be finalized until after a predetermined Short Sale marketing period has elapsed. This varies depending on local market conditions, but can be up to a full year.

What if a Short Sale Fails?

In some situations a lender may be willing to accept a "deed in lieu of foreclosure." This process releases the borrower from the remaining mortgage obligation, but provides the lender with the title to the property up for foreclosure. Once the process is finalized, the borrower usually has thirty days to vacate the property.

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