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Short Sales: Preventing a Foreclosure

August 8, 2011

This is post 1 of 4 in our Short Sales blog series.

Short sales. A few years ago, a small number of people other than real estate professionals had heard of the term. But as the economy has turned downward and homeowners have struggled to keep up with their payments due to job changes, family crisis and even changes to their existing loans – short sales have become more common in the real estate business, and can make up as much as 50% of a Kansas City realtor’s business these days.

Forclosed Bank Repo Home

Short Sales prevent foreclosures

What is a Short Sale?

A short sale is the process where a realtor works on behalf of a home buyer, with the bank, to sell a home for less than the remaining mortgage amount. A short sale is the last option to take when avoiding foreclosure. Most often banks prefer a short sale over foreclosure, as their losses are reduced if the home can be sold.

Why Do a Short Sale?

A short sale will prevent foreclosure, and allow a home buyer to bounce back from negative credit quicker. In a foreclosure, you will have to wait about five years before you can purchase a home again. In a short sale, although your credit is negatively impacted, you can buy a home in about two years. A short sale will not appear on your credit history, nor impact your employment.

How to do a Short Sale

A short sale is a lengthy process that involves lots of paperwork. It’s important to use a realtor that understands short sales, as this will guarantee that all paperwork is done properly and your sale can move as quickly as possible. If your listing agent does not understand short sales or have much experience, your process may not be approved by the bank. Short sales are heavily dependent on working the bank (or mortgage holders) and negotiating prices and terms with them. You must have an experienced professional to successfully complete a short sale. We recommend using an agent with a CDPE certification, which means they are trained on “distressed” properties and understand the entire short sale process.

Is My Loan Forgiven on a Short Sale?

In many cases, once you complete your short sale, the bank will forgive the remaining portion of your home loan and consider your mortgage “paid in full,” or “paid as negotiated.” Even if they don’t, you will be dealing with much smaller debt on a remaining home loan and a greater chance at restoring your credit than if you have a foreclosure on your record.

Stay tuned for our second post about the advantages of short sales in our Short Sales series, and visit our Jackson County Short Sales website for more information.

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