What is the Difference Between a Short Sale and a Traditional Sale?

First, a short sale by definition is when a mortgage lender agrees to allow a borrower to sell their home for an amount that is less than the amount that they owe on the mortgage. The lender will accept the short sale amount as the payoff for the original loan forgiving the debt. Mortgage forgiveness is the high point of this kind of sale, however, there is also a low point. The low point is that the seller collects no equity, no matter how much equity they may have built up prior to the sale of the home. The short sale amount plus all equity becomes the property of the lender. Even though a short sale is not the ideal way to sell a home, it is only used in lieu of foreclosure. When an owner falls behind on his mortgage with no way of catching it up before foreclosure, the best option is a short sale. When this route is taken the homeowner’s credit repair will take less time to mend than with a foreclosure. In most cases, the homeowner will be able to purchase another home in 2 to 3 years. A foreclosure has harsher repercussions.

When do you need to consider a short sale? Sometimes in life, circumstances happen, which will not allow a homeowner to pay the mortgage on their home. It could be job loss, severe sickness, or even death that could cause someone to fall behind with their mortgage payments. Banks are usually tolerant up to the point where there is no viable option but to foreclose on the property because of outstanding back payments and foreclose they will. Of course, the best way to settle this issue is to put the home on the market the traditional way as soon as the first mortgage is missed. By placing the home on the market with a traditional sale early, it would be totally possible to sell it before the bank starts foreclosure proceedings. With a traditional sale, the homeowner will benefit financially by collecting the equity that has built up in the house. Under these extenuating circumstances, the best thing to do is to talk to your Real Estate Super Team as soon as the first payment is missed! We are well versed on the topic of “Short Sale or no Short Sale,” so we can advise you of your best option. The key is to not wait too late because no matter how long you have been in your home, the bank contractually can take the house away from you if you cannot keep your part of the agreement.

The whole idea of this discussion is to motivate all homeowners who have fallen into trouble with paying their mortgage as agreed upon with the lender, to act quickly! One can benefit from the traditional sale if you act promptly. However, if the homeowner goes into denial very often, the end is a sad one: foreclosure. When a home forecloses, the owner is evicted by force. The sheriff will come to the home and personally evict the occupants. There is no time to pack up once the sheriff is involved. So, to sum it up, a traditional sale is best if you have time, and one will have time only if one acts as soon as the inability to pay the mortgage is recognized. The result of this type of sale will allow the owner to collect the equity out of the sale that has built up since it was purchased. The short sale is second best and only used if time has been exhausted for using a traditional sale. Short sales have a softer impact than foreclosure. Most times, the credit will be completely healed in 2 to 3 years, as opposed to 7 or more years with a foreclosure.

If any homeowner would find themselves in this situation, give us a call or an email. We will help you to decide what your best options are. The key to getting the most out of a sad situation is to act quickly. Call your Real Estate Super Team today: Gloria (407) 234-4323 or Angie (407) 209-8397. We care!