Short Sale

Short Sale. What is it? And how does it work?

After the last two posts, Liens, Grantors, Grantees, Mortgagor, Mortgagee......... and Title Insurance and Foreclosure, this post will be short and sweet.

A short sale is the sale of a house, where the balanced owed on the mortgage is greater than the proceeds from the sale of the house. The seller/mortgagor turns over the proceeds from the sale of the house to the lender/mortgagee. The seller/mortgagor may be by this action able to satisfy the debt entirely, however, they may not, and they could still be liable for a deficiency balance.

It works through the lender's loss mitigation department. The lender must agree to discount the loan balance due. Usually, unless there is a Notice of Default issued, a Lender will not accept a short sale offer. The best thing for a seller/mortgagor to do is to contact the loss mitigation department or have their agent do it for them and get the check list of items they need to begin the process. The seller/mortgagor will have to prove a hardship and will need to provide tax returns, bank statements, perhaps w-2's, etc.. Each lender/mortgagee should have a check list of the items, which need to be provided for them to entertain doing a short sale for you, the seller. It is one of those things that is best to address all of the possibilities as soon as possible. Have the payoff ordered and a title report ordered. You should know exactly where you stand as soon as possible keeping in mind, the response time may be slow from the lender.

Buyers should be prepared to put in an offer and any possible additional paper work required by the lender and then, wait. The response time will not be the normal 2-5 days, which you get from a private seller. Be prepared to wait from 3 weeks to 3 months for an answer. Some of the banks have become very organized and can get it turned around in a month or so. Others, however, are overwhelmed or slow, and may take up to 3 months to respond.

Sellers are willing to go this route to avoid foreclosure as are lenders. The foreclosure process can be far lengthier and more expensive for the lenders than accepting a short sale, and this option offers the possibility of a cheaper conclusion for them.