Short sales in Alberta are typically undertaken by homeowners looking to prevent their home from going into foreclosure. However, not everyone understands how they work or what they ultimately mean for the sellers of the property. From credit scores to final sale price, find out more about how Alberta short sales operate for the lenders, buyers, and sellers.
Striking a Deal with the Lender
When a home is getting ready to go into foreclosure, it's the lender's job to take back the property and sell it. The lender is in the business of finance—not in the business of real estate. The last thing they want to do is hire a real estate agent, arrange for home repairs, and negotiate with picky buyers. So instead of taking the job on themselves, they agree to take a lower price for the home if the seller does the work. The lender still has to approve the terms of the sale, but they don't actually have to make the arrangements. This is essentially the long and short of a short sale.
How Short Sales Affect Credit
Getting into debt is never going to be good for the homeowner's credit, but a short sale is better than a foreclosure. Sellers may still be able to preserve a higher score if they can successfully complete a short sale. How much a credit score is affected will depend on how many payments were missed and how the lender reports the debt.
Short sales typically only occur when buyers owe more than the estimated value of the home. This can become quite complicated for lenders. If the loan has entered the secondary market for any reason (usually after being sold by the lender as bad debt), then the lender will have to appeal to a mortgage association to enter into negotiations. If the homeowner had LMI on their mortgage, then they also need to be alerted of the short sale.
That's why it's crucial for homeowners to communicate with their lender at every stage of the way. If a major financial hardship has occurred, the lender may be more willing to work with the owner. For example, the lender may be able to offer a deal where the seller and lender split the difference of the total loan price and the sale price of the home.
Pricing a Home
Lenders have to agree to the price of the home before the seller puts it on the market. Sometimes homeowners are in a hurry to get the process started, but a short sale isn't about rushing the sale. Short sales in Alberta are sold 'as-is'. This means that the buyer can't come back and sue the seller if the wiring of the home is faulty or if the plumbing is on its last legs. Sellers should still expect the buyers to request an inspection, no matter how attractive the home sale price may be. Buyers may also do their own research at City Hall to determine more about the construction date of the home or its original blueprints.
Experts recommend finding a real estate agent with plenty of experience in short sales for the following reasons:
- Lenders take longer: Short sales can take quite some time to be approved. The lender not only needs to clear the sale but also the terms of the loan dismissal with the homeowners. Because this can take quite some time, sellers need real estate agents who know the ins and outs of the sale.
- Agents know loans: Lenders in Alberta may sometimes bury certain conditions of the sale in small print. A real estate agent can warn clients of any potential problems, so they can plan ahead.
Homeowners need to be patient during a short sale above all else. Sellers may need to go through several rounds of negotiations before the lender agrees to the terms. And because buyers usually have different loan terms in a short sale than a traditional home sale, sellers need to be prepared for the loan falling through on the buyer's end as well. This means starting the process all over again, which can be a hardship during an already trying time.
Short sales will take some mental effort on the part of the homeowner, but they're often the only way to protect a seller's credit score. A short sale shows that the homeowner is proactive enough to contact their lenders, work with a real estate agent, and negotiate terms in their favor. These are all positive qualities that future creditors and lenders will appreciate seeing in the future.