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Short sale may be the best choice for seller, buyer and lender

The lagging South Carolina housing market, coupled with a sluggish job market, has left many residents in a state of confusion and worry. Although the economy is beginning to improve, many homeowners are still in a bind. They fear that they will lose their homes due to foreclosure and know that they will probably not be able to sell their home at a rate that will allow them to pay back their mortgage obligations.

Over the course of the past few years, many distressed homeowners have sought a short sale as a healthy alternative to foreclosure. As it looks, choosing to go through with a short sale may not only be the best option for existing homeowners, but it may be the best alternative for lenders and home buyers as well.

If a mortgage lender chooses to approve a short sale, they may be able to recover more of the loan obligation than they would be able to under a foreclosure. In foreclosure there is no guarantee lenders will be able to recoup their losses. Allowing a short sale allows the existing homeowner to work with a real estate professional to go through with a transaction that allows the bank to recover a greater portion of their assets and the homeowner to find a fresh start.

Short sales are often a better solution for home buyers as well. In many cases, foreclosed homes come with a variety of structural or title issues, because of the length of time between the foreclosure and sale of the home. The short sale process involves careful negotiations between three parties -- buyer, seller and lender -- which mitigates the risks for all involved.

Above all, the short sale process seems to be a solid option for homeowners. Foreclosure is a difficult and emotional that can often inflict long-term damage on a person's financial health. Thankfully, choosing a short sale is often less damaging to a person's credit score than a foreclosure. Credit score health is essential to rebuilding relationships with lenders and emerging from financial distress.

One of the drawbacks traditionally ascribed to short sales is that they can take a long time. However, as we reported earlier, Fannie Mae and Freddie Mac will be rolling out new guidelines for the short sale process next month. The new rules are designed to provide underwater homeowners with the relief they need in a much more expedient fashion.

Source: The Christian Science Monitor, "Foreclosures down, short sales up. Are banks getting smart?" Laurent Belsie, May 17, 2012

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