Is A Short Sale The Right Choice?

With the decline in home values in the past few years, some homeowners who need to sell in the current market find themselves trapped, as they owe more than their home is worth. In this situation, the short sale can become a viable option.

A short sale is simply a sale in which the proceeds are not enough to cover all of the outstanding obligations associated with the sale of the home including the mortgage or mortgages, unpaid property taxes, attorney’s fees, title expenses, commissions, etc. This shortage would require the seller to bring money to the closing or to negotiate a “shorted” payoff with their lender. The lender has no obligation to agree to this, but many will. In most cases, a short sale is attempted by sellers who are facing foreclosure or have fallen behind and no longer have the ability to continue making their payments.

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There are a lot of misconceptions about the short sale process and the lender’s role in it, even among some Realtor®s. The seller’s lender’s role is nothing more than that of a contingency. This can vary by state depending on whether it’s a title theory state or lien theory state. This information applies to Illinois, which is a lien theory state (the owner holds title and the lender holds a lien on the property)

The seller owns the home and ultimately is the one who, with the help of their agent, accepts, rejects or proposes a counter offer once an offer is received. When the offer is accepted by the seller, it is done so contingent on their lender agreeing to accept the net proceeds of the sale as full settlement of the amounts owed. I’ve had more than one occasion where an agent working for a buyer asks when their offer will be submitted to the bank, even before the seller has agreed to accept it. It can add to the confusion if multiple offers are received. Some think that all offers must be presented to the lender. This is not accurate.

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