A variety of factors can contribute to financial trouble that may cause a home buyer to the default on a home loan and be faced with imminent foreclosure by the lender.
Additionally, rising adjustable rate mortgages coupled with declining real estate values and no equity can put a homeowner in an adverse situation where their home is worth less than what is owed on it.
No longer able to afford the mortgage payments and no other assets or refinancing alternative to make up the short fall, they are in all probability in jeopardy of losing their home to bank repossession.
Embarrassment, fear, anger, and despair can hinder homeowners in financial distress from taking prompt action. They may fail to understand the implications of default, or just not know what to do or where to turn for help.
Perhaps having mistakenly relied on financial qualification figures for what they could afford, or a bank appraisal for the property's value, some homebuyers or those who have refinanced may now feel that their mortgage broker or real estate agent is to blame.
When facing financial difficulty, a homeowner's best option is to immediately try to work out a solution with the lender. In certain circumstances where a modified payment arrangement to repay the loan is not feasible and all other options have been exhausted, a short sale transaction may be an alternative to bank foreclosure.
In this mutual arrangement between the lender and a financially upside down borrower, selling a property at a mitigated loss rather than executing a costly foreclosure process is a way for the lender to avoid having to take over the property until it can be resold. The delinquent borrower still loses the property and copes with the shortage, but escapes the long-lasting and expensive consequences of damaged credit.
In the course of duty, real estate professionals must be knowledgeable about short sales and have the ability to counsel clients effectively in coordination with appropriate tax and legal experts.
Real estate salespeople may encounter such a scenario during a listing discussion when it becomes obvious that the optimal selling price for the property is less than what is owed on the mortgage. Or it may be a condition of sale when engaged in the representation of a buyer interested in purchasing such a property.
Individual circumstances make each short pay transaction different, but pre-foreclosure home sales can be expected to be a challenge requiring knowledge, negotiating skill and patience. For the uninformed entering into a short sale transaction without a comprehensive understanding of the process, it can be a frustrating undertaking with potential for severe financial repercussions for the client.