A lender is interested in securing the best deal it can and will only accept a short sale offer after concluding that it provides an equal or better deal than a foreclosure sale.
To sell stocks short, you need to open a margin account
To qualify for a margin trading account, you need to apply, and you must have at least $2,000 in cash equity or eligible securities. When you use margin, you must maintain at least 30% of the total value of your position as equity at all times.
Although the lender or lenders must approve the short sale, they are not the sellers. The homeowner is the seller, but the bank or other financial institutions involved must agree to it since they will likely take a loss on the property.
A potential short sale is one where the listing agent reasonably believes the purchase price may not be enough to cover payment of all liens and costs of sale and the seller is unwilling or unable to bring sufficient liquid assets to the closing.
A short sale in real estate is an offer of a property at an asking price that is less than the amount due on the current owner's mortgage. A short sale is usually a sign of a financially distressed homeowner who needs to sell the property before the lender seizes it in foreclosure.
Part of what makes this process take so long is that the bank doesn't tell you how much it wants for the property. Instead, they look at the offer from the buyer and decide whether to accept or reject. Waiting to hear back from the bank is the first of the delays in the short sale process.
Benefits Of A Short Sale In Real Estate. A short sale can be beneficial for all parties involved. It provides greater investment opportunities for buyers and minimizes the financial repercussions that both the lender and seller would face if the property went into foreclosure.
Below market, no. Below ask, maybe. If you can show comps that support that price it's possible, you need to get the bank to approve it. So it is possible to pay less than what the seller owes on the mortgage, but $200k less is a big ask unless the market has changed a lot.
Implemented by the SEC in 1938, the rule required every short sale transaction to be entered at a price higher than the previous traded price or on an uptick. The rule was designed to prevent short sellers from exacerbating the downward momentum in a stock when it is already declining.
For a short sale to happen, both the lender and the homeowner have to be willing to sell the house at a loss. The homeowner will make no profit, and the lender will actually lose money for selling the house for less than the amount owed.
To make the trade, you'll need cash or stock equity in that margin account as collateral, equivalent to at least 50% of the short position's value, according to Federal Reserve requirements. If this is satisfied, you'll be able to enter a short-sell order in your brokerage account.
If your offer is at fair market value and whoever is negotiating the deal for the seller is experienced and knowledgeable in their process, you have a better than 90% chance that your short sale will get approved. You just have to be patient and let the process run its course.
In a short sale transaction on the other hand, the seller's closing costs are usually paid out of the money the buyer brings to the closing. Normally, the seller's lender must approve all of these seller closing costs before a short sale can be approved and completed.
Which of these lenders would be least likely to approve a short sale? junior leaners (Because they're in a secondary position when it comes to liens against the property, they realize that there may not be any money left to pay them after the lender in first position is paid.)
The short sale is often preferable to a foreclosure, but it is not a resolution to all a homeowner's financial woes. Aside from potential tax liability and credit implications, if the homeowner is expected to pay the difference between the sale price and the mortgage, that can compound the financial difficulty.
Banks are businesses and, just like any business, they are seeking to earn a profit. If it costs more to foreclose over agreeing to a short sale, the bank is very likely to favor the short sale. With foreclosure, a bank takes possession of the house, then resells it at a mortgage auction to the highest bidder.
A Short Sale Will Damage Your Credit Scores
Some say short sales have less of a negative effect on credit scores when compared to foreclosures, but this claim isn't necessarily true. Short sales, as well as deeds in lieu foreclosure, are pretty similar to foreclosures when it comes to damaging your credit scores.
A lender may refuse to approve a short sale in the following circumstances: 1) if the homeowner is not in default on mortgage payments yet; 2) if they believe more money can be recovered from foreclosing on the property; 3) if there is a cosigner they can hold responsible for payment.
In most states, the bank can seek a personal judgment against the borrower after a short sale to recover the deficiency amount.
If it's below value, that is generally acceptable. Just not excessively below. Think of your offer as being “within shot.” For example, a Seller that has an FHA loan trying to get short sale approved, a common number the bank is willing to approve is a minimum “net” 88% of the bank's appraisal price.
Sellers Who Cancel Short Sale Contracts
In California, buyer's agents generally attach a "short sale addendum" to the purchase contract. The short sale addendum specifies that the entire transaction is contingent upon lender approval.
Real estate agents advocate for homeowners but lenders have the say in sales. Some lenders may be more willing to negotiate while others have policies. Handling these situations requires patience, persistence, and strong negotiation skills. Short sale negotiations can take time.