Short Sale Frequently-Asked Questions

August 21, 2020

In terms of real estate, a short sale is when a house sells but the owner still owes money to their bank. If you are considering a short sale or simply want to learn more about the process, use this quick guide from your Los Angeles accounting firm to get started. 

Why Do Short Sales Occur?

In “short,” such sales sidestep foreclosures. For example, if the owner owes the bank $250,000 but cannot pay due to life changes such as getting laid off from work without the cushion of a savings account, they may agree to sell their home quickly for $200,000. The bank will likely agree to this amount and accept it as full payment because homeowners are not the only ones who want to avoid foreclosures. They often cost banks serious money and time, making short sales “wins” for both parties. 

Do You Have to Qualify For a Short Sale?

Assuming their banks accept short sales, homeowners must prove they are necessary with “hardship” evidence such as a lack of income, divorce, medical expenses, and reduced income. Tax returns, pay stubs, divorce documents, and bank statements provide such evidence. Homeowners must also owe their banks more money than their residences are worth in light of current market values. If the mortgage lender does not approve the short sale request, it cannot go through. 

Should I Buy a Short Sale Home?

Real estate short sales offer benefits such as reduced or fair market value prices without dealing with the issues often associated with purchasing foreclosed properties, such as the inability to obtain financing. And while short sale properties are bought “as is” and may need numerous repairs, real estate proceedings can occur at an expedited rate depending on the situation’s urgency. Before considering a short sale purchase, do your research and decide on a closing date. Also, keep in mind that you will likely have to cover all closing costs instead of the lender. 

Are There Short Sale Delays to Know About?

While most lenders and owners want sales to happen quickly, they can still take longer than standard real estate transactions because the lenders must review and approve the sale request first. If there are additional parties associated with the transaction, such as junior-lien holders, resolving their issues also lengthens sale processes. 
Contact the Encino tax consultants at Wallace & Associates for more short sale information. The Los Angeles accounting service provides real estate assistance among other help.