If You’re Currently Paying A Mortgage, Here’s A Question That You May Have Heard: What Is A Short Sale In Real Estate?
Have heard of the term ‘short sale’? Do you know what is a short sale in real estate? A short sale is an option for a homeowner in financial distress and having trouble making mortgage payments. It means that the house is being sold for a price lower than the amount still owed on the mortgage. The difference between the balance and the sale price is called the deficiency. All the proceeds of the sale go to the lender.
The lender can opt to forgive the difference or get a deficiency judgment. A deficiency judgment is a court ruling against a borrower in default on a loan. Some states require that the difference in a short sale must be legally forgiven.
In Florida, the law allows banks or lenders to get a deficiency judgment after a short sale. If the property is residential and occupied by the owner, the deficiency is “limited to the difference between the outstanding debt and the fair market value of the property on the date of sale.”
As the borrower, you may also be required to sign a promissory note stating that you will pay the difference owed. The lender can go to court if you fail to settle the amount. If the lender does not require a promissory note, you may have to pay taxes on the forgiven amount, as a condition of short sale transactions in Florida.
What Is The Difference Between A Short Sale And A Foreclosure? What About A Mortgage Forbearance?
A foreclosure is a legal action wherein the lender seizes the home from the borrower. This happens when the latter is unable to pay the mortgage for three to six months. This is usually a last resort. Borrowers who have received a Notice of Default can opt to settle through a short sale. This period is called a pre-foreclosure.
One difference is that only a lender can start a foreclosure process. A short sale, on the other hand, is a process initiated by the borrower and approved by the lender.
Another major difference is the impact on the borrower’s credit rating and their ability to purchase a home afterward. With a short sale, you can be eligible to buy another house right away. However, an ex-homeowner who has gone through foreclosure will have to wait at least five years to purchase another home. A foreclosure will also be on the borrower’s credit report for seven years.
Mortgage forbearance is an agreement between a lender and a borrower that allows the latter to settle dues and avoid foreclosure. The homeowner is usually allowed to delay payments and the lender agrees to not foreclose the home. At the end of the grace period, full payments must be resumed, plus taxes and interest, depending on the terms of the agreement.
This type of agreement is considered a short-term solution. It has been common in recent months, as many homeowners struggle with the impact of COVID-19.
Navigating Short Sale Transactions In The Central Florida Real Estate Market
The real estate market is in a precarious situation right now. If you feel like a short sale is the best solution for you, give us a call now.
The Corcoran Connection is renowned for our honest, timely, and adaptable service. We also have extensive and deep-rooted knowledge of the local real estate market. We can provide expert advice on how to best handle a short sale transaction.
Don’t wait until the last minute. Talk to us now and let’s find out how we can help.