YOU ASK:

What is a short sale and do I need title insurance if I use equity loan to buy?

WE ANSWER:

A short sale happens when the outstanding loans the property has are bigger than the amount the property will fetch if it was sold.

In this case, the buyer of the property is unable to pay the mortgage loan. The lender (who provided the mortgage loan) decides to sell the property at a loss rather than press the debtor to pay off the mortgage loan.

The homeowner also avoids the foreclosure of the home - as well as the money he has already paid on the property. Although the homeowner will have to endure a negative hit on his credit rating, the degree may not be as bad as a negative hit due to a foreclosure.

With a short sale, although he sells the property at a loss, the sale enables the homeowner to settle with the lender. There are some more adventurous investors who are into buying property at short sales because, more often than not, the property is sold at a considerable discount. The house is auctioned off to the highest bidder, and if you play your cards right, you may get a piece of property at bargain prices.

If you are planning to participate in a short sale by being the new buyer, it is recommended that you get title insurance, even if you use an equity loan to buy the property. A property that is about to foreclose may have a lot of problems such as creditors trying to attach a lien on the property. Since the previous owner was unable to pay for the mortgage amortizations, it can also mean that he was also unable to pay real estate taxes, homeowners association dues and other related payments.

As a participant of a short sale, it would be good for you to ask for advice from a real estate lawyer, as well as an account (since there will be ramifications on your taxes). You can also inquire if using an equity loan to buy during a short sale is the best move for you.

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