Short sales on homes are not so common in the UK. But they are much more known in America. If you are in the unenviable position where you can’t sell your house for what you owe, a short sale may be your only option.
What is the reason for a short sale on a house in the UK? The reason for a short sale in the UK is because a home owner who’s in negative equity wants to sell their property. Which means the home owner sells their house for less than the amount owed on the mortgage, but the short sale transaction must be agreed to by the mortgage lender before it can happen.
How does a short sale work?
A short sale is when a home owner sells their house for less than the amount owed on the mortgage. But in order to do so, the home owner needs to agree the short sale with their mortgage lender.
In agreeing to the short sale, the lender is accepting that the seller (or home owner) is “short” of the cash needed to fully repay the mortgage amount outstanding on the property.
What is the reason for a short sale on a house in the UK?
There are many reasons why this may happen to home owners in the UK. These include the following:
Reasons that force home owners to sell using a short sale as an option
- Financial difficulties with the mortgage. If the home owner is struggling to pay their mortgage, they may wish to sell.
- Moving to another part of the UK. This might be for a new job or other reasons and needing to sell to move or relocate..
- Emigrating to another country and needing to sell in order to emigrate.
What is the difference between a short sale and repossession?
As already explained, a short sale transaction occurs when a mortgage lender allows the borrower to sell the house for less than the amount owed on the mortgage.
Whereas a repossession happens after the mortgage lender applies to the courts to repossess the house, following the home owner going into arrears on their mortgage.
When you review the difference between a short sale vs a repossession, a short sale is done by agreement between the home owner and the mortgage company. Whereas a repossession process occurs when the lender repossess the house. This is mostly against the owner’s will.
Although you shouldn’t rely on this, as any adverse credit is bad, a short sale is far less damaging to your credit report than a repossession is.
How long does a short sale affect your credit?
Like a repossession, a short sale is considered a bad on your credit file. A short sale can remain on your credit report for up to seven years. Plus like any other adverse credit item, it will take time for your credit to recover after a short sale.
Why would a bank agree to a short sale?
Mortgage companies sometimes agree to short sales because they are more likely to receive more than if the home owner’s house is repossessed.
The term ‘short sale‘ is not a legally defined term as far as banks and financial institutions are concerned in the UK. But it is something that is recognised and possible. But is always subject to agreement with your mortgage lender.
Before going down the route of a short sale on your house, you need to be clear about your lender’s procedures involved in a short sale.
At the point of you asking your lender for this information, they may want to work with you to reduce the amount owed. This could involve a number of options. But in particular these would help in the scenario where you are struggling to pay your mortgage.
Can you negotiate the price of a short sale?
The short answer is yes you can negotiate the price of a short sale. But bear in mind that any negotiations on the sales process needs to be in agreement with your bank.
The better the sale price in a short sale, the less you will be ‘short’ on cash to repay your lender. Having said this, at the end of the day if your mortgage company has agreed to the short sale, whatever the shortfall they will write this off in any case.
So you could argue that negotiating the price of a short sale is a slightly redundant.
Other options to a short sale
Whilst a short sale may be is a viable option for you. It is probably better than going down the repossession route. However, there are other options too.
Please take a read of this article on ‘can’t sell house for what I owe‘. In this article there are 7 solutions listed.
One such solution is where we can help.
Help from Bowfin involves us being legally financially creative with you. But also and always in agreement with your mortgage lender. Resolving your financial difficulties by avoiding a short sale or a repossession will also help to avoid the negative impact on your credit rating. Not to mention the relief of stress this can cause.
Try to avoid using the short sale route if you can. But definitely avoid going down the repossession process even more. If you would like to discuss your problems with us in confidence, please go to our contact us page.
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