The lender normally will get a broker's price opinion (market value of the house) and after taking into consideration the market value, discounted offer, closing costs, carrying costs and foreclosure fees, it may make sense to either sell the house as a short sale or foreclose on the house.
Because we are a portfolio lender, as an option (to save your credit), you can decide to rent the house, scrape up another down payment and try to qualify for another home purchase. We do not have the normal FNMA/FHLMC requirements for equity and seasoning on being a landlord. Just a thought, if you can qualify. Good luck!
Short sales can be a bit confusing. Although the home is being sold by the owner, the bank (mortgage holder) is making all the decisions. Once a seller decides to sell short, then the sale is negotiated with the bank since they are the ones who will be losing the money. Once a seller decides to sell short, then in all practical ways, the bank is in control from that point forward. Price, terms and final approval are decided by the bank. Because the house is still legally owned by the seller, the seller signs off on all contract documents, fills out disclosures, etc. The seller is also legally responsible for any shortfall, both with the banks and the IRS.
In a short sale the seller still owns the house. It is listed just like any other house. You still negotiate and do all the same things according to each states real estate laws. The final agreement is between the buyer and the seller.
Then once there is an executed contract, the seller goes to the bank and asks the bank to allow them to sell the house at the agreed upon price according to the contract. This is usually less than what is owed on the property. The bank will either agree or deny the short sale.
If they agree to the short sale then the process continues though the bank. There may be second mortgages or loans on the property and that or those loans have to agree to the short sale as well. This is why they take so long. Everyone in the financial portion of this project has to agree to the short sale.
If the bank denies the short sale then the contract is null and void and you either change the offer and resubmit it or move on to another property.
Regarding a short sale, the house is still owned by the seller. The way that this works is the seller hires a realtor to list the house, an offer comes in like normal, however the offer is then submitted to the bank who holds the deed of trust for approval. This can take several months to more than six months sometimes to accomplish, and the bank does not have to approve the deal at all either. Many times they do not and will counter the buyer.
An REO or bank owned home has gone back to the bank already so they can sell it because they do own it. I hope this helps and makes sense to you. Please feel free to contact me anytime if I may assist you more. I can be reached at 951-204-1864 or email@example.com.
Joan Patterson, B.A., A.S.P., G.R.I., Realtor, License #01431647
Keller Williams Realty
8250 White Oak Avenue, Ste 102
Rancho Cucamonga, Ca 91730