Definition Of A Short Sale

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The Cebu real estate industry prospered in the 80's and 90's. Many buildings and houses sprouted like mushrooms in the city. But when the year 2000 came, along with global economic crisis around the middle of the decade, many of these properties went into financial trouble. Foreclosures started to happen one after another. To minimize the financial losses that resulted from this dilemma, mortgage lenders resorted to short sales.

Short Sale

A short sale is a sale wherein the amount that the house is being sold for is less than the actual amount of the house. Let's say, for example, a borrower owed 100,000 dollars from the mortgage lender, the bank, to build the house. But then, due partly to the current housing recession, the house can only be sold for 90,000 dollars. So, the house is 10,000 dollars less of what it cost to have it built. A short sale usually happens when the borrower cannot keep up with the payments for the property mortgage loans.

Meanwhile the lender also thinks that it is better to sell the house at a lesser price rather than press the borrower to pay up. Because of the effects of foreclosure, which are more fees for the lender and poor credit reports for the borrowers, both sides would choose to have the short sale procedure rather than foreclosure. This agreement, though, does not mean that the borrower is now free from the rest of his debt to the lender. The borrower still needs to pay up the remaining balance of the money he owed to the lender.

Procedure

In a short sale, the borrower/house owner sells the property lesser than the amount of the loan. The proceeds of the sale are then all given to the lender. Unless if it was clearly written in the agreement, the borrower is not excused from his obligation to pay the remaining balance of his debt to the lender. Although, the lender would agree to give the borrower a discount to his loan balance due to the borrower's financial hardship.

Reasons why short sale is better than foreclosure

A short sale is much more preferred by both the mortgage lender as well as the borrower for the following reasons: This process is the most economical way to solve the problem, banks will have lesser financial losses as compared to foreclosure, the borrower will be able to lessen the damage to his credit history as well as have partial control of the remaining balance of his debt. In addition to those, short sale processes are also usually faster than foreclosure and less expensive too.


About the Author:
When the Cebu real estate industry went into the foreclosure crisis, several mortgage lenders suffered exceptional and devastating losses. Because of this, short sale processes are now more willingly accepted. For more information on this, please visit PhilCebu Properties.



Article Originally Published On: http://www.articlesnatch.com


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