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Short Sale – What is that!?

December 6, 2007

With market conditions “normalizing”, more transactions are turning into what is called a “short sale”.  This is a transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan. According to the Suburban West Realtors Association: “A short sale may or may not involve a property in foreclosure. The disclosure of a short sale can have an impact on everyone involved in the transaction.” 

A short sale most generally occurs when a homeowner has to move or sell their home without having built up enough equity to cover closing costs.  This can occur in the case of divorce or a corporate move, although sometimes the company will make the seller “whole” in those situations.  If you have lived in your home for more than 3 years, and have been paying off your principal with your monthly payments, the chances of you being in this position are very slight.  Those who purchased their home with 100% financing and have to move within just a couple of years, are at higher risk.   

To find out if you are at risk of a short sale, you can use this calculation to get a general idea:Market Value of your Home minus amount of first and second mortgage minus about 8% of the Market Value for closing costs.  On a $300,000 home, this might look like this:$300,000 – $142,000 – $24,000 = $134,000.  In this example, the homeowner would have built up equity of $134,000, a respectable downpayment on the next property. 

If you want to move, but are concerned about having enough equity, a full service realtor can help you plan to realize your goals. 

Patty Cunningham
Coldwell Banker Preferred
610-429-4400

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