I am often asked by friends, neighbors and strangers alike what the "real" deal is with Pre-Foreclosure or Short Sales. A Pre-Foreclosure or what is commonly referred to as a Short Sale is when a person who has purchased a home cannot afford to make his or her mortgage payments any longer and needs to get out from under the mortgage and sell the home.
Typically this involves a hardship of some kind that has caused them to fall behind or in a pending state of falling behind on their payments. A job loss, sickness, divorce, death or job transfer can be classified as a "Hardship."
In today's real estate market I see many situations when the home is actually worth less than what is owed and therefore the proceeds of the sale do not cover the mortgage balance. When this occurs the lender must agree to a Short Pay of the mortgage and hence the term short sale. When this happens the lender agrees to take the loss on the home and can either file for a Deficiency which requires the owner to pay the remaining debt back (very unlikely) or simply take the loss at write it off as bad debt.
If a owner does do a short sale their credit scores, in most cases, is impacted greatly and will not allow them to purchase another home for 2-5 years depending on the situation. In some cases (I am working on one now) a family that has stayed current on the payments but needs to do the short can qualify immediately to buy another home.
Credit scores will drop if you are late so this is a concern for many however it is considerably less than allowing the home to be foreclosed on. A foreclosure on a credit score has many issues tied to it and can actually cause some people to lose their jobs. Mainly this is government and public service type areas that are most affected.
If you are considering buying a short sale, I came across this article by Brandon Brittingham that can shed some light on the process and what to expect as you move through the purchase of a short sale.
If you or someone you know is in need of some help and wants to get some free answers please give me a call or check out this confidential website: Prevent Atlanta Foreclosure for more information.