Even with the best of intentions, some homeowners cannot continue to pay their mortgage. Even missing a single payment can initiate the foreclosure process with a lender. Foreclosure has serious consequences for a homeowner and can make it hard for an individual to finance a home in the future. Though many people may want to buy foreclosed properties, having a home foreclosed on is not always the best path. As an alternative, many choose to sell a home as a short sale.
Not everyone can go the route of a short sale, as a cooperating lender is involved in approving this option. However, short sales can benefit a homeowner and their lender. Understand more about the short sales process and how it works in Canada today.
The Short Sale Alternative
There may come a time when it becomes impossible to pay off a home mortgage loan. Changing circumstances, including job loss or divorce, can interfere with one's anticipated ability to meet financial obligations. However, foreclosure is not the only option for a homeowner, as it is possible to mitigate the foreclosure process with a short sale. A short sale can also help those who are looking to move locations or who are not able to make payments on multiple mortgage payments.
A lender may agree to accept an amount that is less the balance of the mortgage loan. Permission of a short sale comes from the lender and is helpful for a homeowner that wants to avoid the long-term negative impact of foreclosure. Foreclosure affects credit scores and credit history, potentially making it challenging to rent a home or buy property. While both short sales and foreclosure will lower one's credit score, foreclosure will generally decrease one's credit score more than a short sale.
The foreclosure process can be relatively long for a lender and seller, in particular when the homeowner wants to be informed about every step of the process. Everyone gets to move on quickly with a short sale and a credit report will have a short sale listed as pre-foreclosure status. The home is sold at a loss and both the homeowner and the lender will not recoup the full worth of a home. However, the short sale process can still be better for the homeowner and the lender. Those who sell a property as a short sale may be able to apply for a mortgage after a short sale. Lenders can recoup some of their money through a short sale and avoid the potential challenges that can arise with foreclosure. Not every lender or bank will work with a seller that has sold a previous home as a short sale. Homeowners who go through the short sale process may have to contact multiple lenders to be approved for a future mortgage loan.
Rejection of Short Sale Offers
It is better to have a bank agree to a short sale. If a homeowner has taken out more than one loan on a property, they must get both lenders to permit a short sale. A short sale may be rejected if:
- Documentation is missing;
- The offer price is excessively low; and
- The seller is not willing to repay the bank, but has taxable assets.
A hardship letter is one of the items required that details why a seller is not in the position to pay back a lender. It can be worthwhile to review examples of hardship letters and double check that all documentation has been completed accurately before sending the short sale package to a lender for their approval.
Buying a Short Sale
Potential Bel-Aire home buyers may want to know that a lender needs to agree to the price attached to a short sale home. The discounted price initially seen on a listing may not be one that the lender has approved. Buyers may not want to forego a home inspection. Previous owners who may be short on funds may not have been able to perform regular maintenance or make necessary repairs on their property. With the short sale process, the disclosure requirements are different and new buyers may buy a home not knowing that there are plumbing issues or foundation problems. Buyers can find out more about the home by contacting the city planning department. However, with all of that being said, buyers can still score a good deal with short sale properties.
A Short Sale Can Help
It may be necessary to be patient with a lending institution. It may be a few months before a lender will make the necessary assessment and get back to the homeowner. A homeowner who is approved for a short sale may also choose to cancel it. Short sales are a good option for those who need to avoid foreclosure or simply need to start fresh.