Is A Short Sale For Me?











In Real Estate, a short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold.  In a short sale, the bank or mortgage lender agrees to discount a loan balance due to a financial hardship on the part of the mortgagor.  This negotiation is all done through communication with a bank's loss mitigation or workout department. 





The homeowner/borrower sells the mortgaged property for less than the outstanding balance of the loan, sometimes in full satisfaction of the debt.  The bank's opportunity of pursuit of a deficiency judgment will vary from state to state. 





A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is determined on the most economic way for the bank to recover the amount owed on the property.  Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing since there are carrying costs that are associated with a foreclosure. 





A bank will determine the amount of equity or lack of equity, by determining the probable selling price from a Broker price Opinion (BPO).  A short sale is typically faster and less expensive than a foreclosure. For the borrower/homeowner, advantages include the avoidance of a foreclosure on their credit history.  It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of the offer. 

Lenders have a department typically called Loss Mitigation that processes the potential short sale.  Today, lenders may accept short sale offers or requests for a short sale even if a Notice of Default has not been recorded.  Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from the current foreclosure crisis, they are now more willing to accept short sales than ever before.

Lenders have a varying tolerance for short sales and mitigated losses.  The majority of lenders have a pre-determined criteria for such transactions.  Junior liens- such as second mortgages, Home Equity Lines of Credit and Home Owner Associations may need to approve the short sale.  Other entities may include tax lien holders including, income or estate tax, which have priority even when unrecorded. Mechanic's liens may also hold up your short sale.  If your lender required Mortgage Insurance on the loan, the insurer will likely also be party to negotiations.  Because of the high degree of complex negotiation that takes place with the various parties involved it is extremely important to have your short sale handled by a knowledgeable and experienced professional. 

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