What is a Short Sale?
Short sales are usually initiated by the homeowner, often when the value of a home drops by 20% or more. Before the process can begin, the lender that holds the mortgage must sign off on the decision to execute a short sale. Additionally, the lender, typically a bank, needs documentation that explains why a short sale makes sense; after all, the lending institution could lose a lot of money in the process.
If approved for short sale, the buyer negotiates with the homeowner first and then seeks approval on the purchase from the bank second. It is important to note that no short sale may occur without lender approval.
Short sales tend to be lengthy and paperwork-intensive transactions, sometimes taking up to a full year to process. However, short sales are not as detrimental to a homeowner’s credit rating as a foreclosure is. A short sale looks better to future lenders and creditors: It shows you took action before the bank had to repossess your home. A homeowner who has gone through a short sale may even, with certain restrictions, be eligible to purchase another home immediately.