What is a Short Sale on a House?

Whether it be the loss of a job or unexpected expenses, everyone must deal with tough financial situations at least once in their lives. An unexpected loss of income can cause issues from canceling a family trip to not being able to pay a mortgage, but what do you do if you can’t pay your mortgage and are in danger of turning your entire finances upside down?

In situations where a house needs to move quickly to avoid foreclosure or an owner must get their property off the market immediately, borrowers and lenders can consider a short sale. Let’s find out what a short sale on a house is, the process, details about deficiency judgments, and how to find short sales in Colorado.
What is a Short Sale on a House?

Short Sale Information for Homeowners

Whether it be the loss of a job or unexpected expenses, everyone must deal with tough financial situations at least once in their lives. An unexpected loss of income can cause issues from canceling a family trip to not being able to pay a mortgage, but what do you do if you can’t pay your mortgage and are in danger of turning your entire finances upside down?

In situations where a house needs to move quickly to avoid foreclosure or an owner must get their property off the market immediately, borrowers and lenders can consider a short sale. Let’s find out what a short sale on a house is, the process, details about deficiency judgments, and how to find short sales in Colorado.

What is Involved in a Short Sale?

A short sale in real estate is when a homeowner sells a home or property for less than is due on the mortgage. For example, a homeowner listing a home for $150,000 when there is more than $200,000 left on their mortgage. The home is sold to a third party and all proceeds from the home sale go directly to the lender. The lender can forgive the difference in price or get a deficiency judgment against the borrower, which we’ll learn more about later.

Why Should You Short Sale?

Why would you list a home for less than its worth? Most homeowners involved in short sales are in financial trouble and cannot pay their mortgage but want to avoid foreclosure. Foreclosure is harmful to both borrowers and lenders and while a short sale still involves paying less than owed, it’s an easier situation to manage than a foreclosure.

Short sales might be used in cases where the borrower has to move immediately, if the borrower knows they’re headed for foreclosure, and doesn’t want the sizeable penalties that come with foreclosing a property, or even when a bank or institution needs to dump or liquidate their assets quickly.

Short Sale vs Foreclosure

A short sale involves a homeowner listing a home for less than is owed on it, but a foreclosure is an act of the lender seizing the home. Whereas foreclosures are initiated by the lender only, short sales can be initiated by the lender or borrower.

A foreclosure stays on a borrower’s credit report for seven years and can ruin their chances of taking out a home or auto loan for five years at a minimum. A short sale won’t tank a credit report as a foreclosure will and can allow the borrower to immediately move into a new home in some cases. Short sales will still hurt a borrower’s credit report but won’t restrict them for five to seven years.

Lastly, foreclosures normally take place due to an abandoned property, whereas a short sale is an agreement between a borrower and lender to help both parties recoup losses or get out of a difficult situation.

How to Buy a Short Sale Home in Colorado

Colorado real estate is hot, but there are short sales on the market that potential homebuyers can take advantage of. If you’re interested in purchasing a short sale home your first task is to get connected with a real estate agent to protect you during the buying process. Ideally, you want to hire an agent that has ample experience in short sales and knows the nuances of this unique transaction. Failure to do your homework and hire a proper agent could cost you in time and financial resources.

Does Colorado Allow Deficiency Judgments after Short Sales?

The state of Colorado allows for deficiency judgments for short sales. In the case of deficiency judgments, a court will require the borrower to pay a portion of the entire difference between what’s left on the mortgage and the short sale price, known as the deficiency.

Deficiency judgments are often used in place of foreclosure. Deficiency judgments are rare after short sales, and normally only happen when a lender believes you have the money or assets to pay back the deficiency. In some cases, the lender may forgive the owed debt to help everyone avoid the costs and time-sink of the court process.

How to Find Short Sales in Colorado

Tatyana Sturm of The Storck Team has been helping Coloradans avoid foreclosure with short sales for years and has their own inventory of short sale homes for potential homeowners looking to save big. You can browse our short sale inventory or contact The Storck Team directly for further inventory or help with your own short sale. Experience is key when considering short sales, so use a veteran like The Storck Team to help you score a once-in-a-lifetime deal or get out of a difficult situation.