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What is a Short Sale and Why Does it Take So Long?

By Karen Godfrey

A short sale is an alternative to foreclosure. It is when the sale of the property will fall short of the debts attached to the property, including liens. If the home is sold in short sale, any debts owed to creditors attached to the home, does not necessarily release the home owner from those debts. It simply allows them to sell the home. In most cases the mortgage company will agree to forgive the rest of the debt attached to the home. Short sales can still damage your credit, but will not be as damaging as a foreclosure.

To the uninitiated, the name "short sale" can throw you off. But don't let the name fool you -- short sales tend to be anything but short. So, just why do short sales take so long?

After the seller and the buyer have made a deal, the sale now goes to the bank. This is when the process begins to slow down. It should be noted that if you are selling your home on a short sale, that your agent should have experience with short sales. This can be a very tricky process and you want an expert. Because short sales are becoming more common, a lot of agents are gaining the knowledge they need to navigate the process. You just need to find the right one.

The bank at this point is asking the seller to submit paperwork regarding their finances. This is the beginning of the review process for the bank. The bank wants a clear understanding as to why the seller is unable to afford the home. This is called a "short sale package" and because it is so detailed the bank needs to review every aspect, and the agent needs to be proactive in following up with the bank. If there is more than one bank involved then you have to adhere to two different sets of requests and paperwork standards. During this process paperwork can become outdated, for instance your checking account statement. If you submit it in May, and the bank does not look at it until July, the paperwork has become outdated.

The housing market has slowed many banks down, and they only have so many hands to review the paperwork, and many have fallen behind. If you are trying to find an alternative to foreclosure, a short sale is still a good option to look into, especially if it will save part of your credit rating.

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