Real Estate: Short sales not a simple process

It can be very hard for owners to accept when the market forces them to sell for less than they want to get out of their home.

Lately, some sales are even for less than the owners still owe on their home. This is never easy. Known as a short sale, it is an alternative to foreclosure for down-on-their-luck homeowners.

But short sales aren't a simple process, requiring the lender's approval at every stage. If an offer is made, the bank needs to decide if it is within the range it will accept. If the bank does accept it, the owners need to find out for sure if their remaining debt will be absolved.

Some lenders will do this, but others may force the seller to pay their remaining debt by selling off their other assets.

The chance of being absolved of debt is very appealing to down-on-their-luck homeowners, considering the alternative is foreclosure.

Foreclosures mark a credit rating for seven years. Sadly, a bad credit rating can stop people from getting another mortgage. Further, some renters and even employers check credit ratings and see them as a sign of trustworthiness and competence. Plus, there's the humiliating process of having one's home on the public auction block.

So the impacts of foreclosure are far reaching and can really turn one's life in a negative direction.

It should be noted, however, that although a short sale shows up differently on your credit report, it is still there and can have a negative impact.

Most banks prefer to accept a short sale than to foreclose, since they must pay taxes on every property in their possession. Taking a small cut in the sale of the home may still save them the money and hassle involved in foreclosing. Therefore, short sales are a better option but they can end up taking months longer than conventional home sales.

A short sale is a serious thing, and it won't be accepted by the lender without proof that the market drop has created a situation in which the homeowners won't be able to sell the home for what they owe.

Also, a short sale usually can't happen until after the homeowner is in default, or is about to go into default. In the past, no bank would consider it until the owner had missed mortgage payments.

But the current economic climate has made lenders realize that it's sometimes better to quit while they're ahead and accept a short sale before they lose too many payments.

However, homeowners probably will be expected to show in writing why they are unable to make further payments or pay the remainder of their debt. Suitable reasons include a death or critical illness in the family, divorce, loss of a job or bankruptcy.

Homeowners also will need to show the lender that they have little or no assets. Ultimately, it is in the lender's hands whether a short sale is accepted.