What is a Short Sale? 

In real estate, a "SHORT SALE" is a sale that happens when the outstanding loan against a property is greater than the current market value of the property itself, yet the lender or bank who issued a mortgage for the home agrees to accept less than the full amount owed by the borrower (seller). In many instances (but not always) a short sale is a solution for homeowners who are behind on their mortgage and legitimately cannot afford to pay, but want to avoid foreclore. Usually they want to be able to walk away from the property without blemishing their credit to the same extent that a foreclosure or bankruptcy declaration would. Not all banks will allow a "SHORT SALE," but in these challenging economic times many will. Technically the property is not yet "bank owned," but it may may very well be if an acceptable buyer is not found in a timely fashion.

 

NOTE:  The next step once a bank takes over a property (and it becomes bank owned) may be for it to be sold at the sherriff auction.

 

 

These are the basics of how short sales work...

Let's imagine a homeowner is behind in their mortgage payments a few months and is facing foreclosure. Next come the letters from the bank or mortgage company demanding payment begin. The homeowners owe a mortgage of $345,000 but let's say the house in today's market is only worth $320,000. In order to get out of this home, there are additional costs that need to be paid to cover real estate transfer taxes, utility bills, fees, etc.

The homeowner should first call their mortgage lender to explain the situation. They need to make sure they get they write down the date, time and name of the person they spoke to. I always encourage homeowners to see if their mortgage lender will allow them to do a loan modification first.  A loan modification occurs when a lender allows a borrower to renogiate their mortgate rate and certain terms of the original loan the agreed to.

If the lender won't allow a modification, and the borrower is delinquent on their payments, a short sale may be the next best option.  Eventually, the homeowner will be required to fill out a "financial package" provided by the lender. This package typically includes paperwork that needs to complete and must be accompanied by a letter explaining a legitimate financial hardship, a year or two worth of tax returns, multiple bank statements, an authorization letter to allow the Realtor whom they eventually choose to discuss their business matters with the lender and whatever other documentation they require. The lender will indicate exactly what items need.

In my experience with short sales, the lenders almost always tell the homeowner that will not give an approval for a short sale until a qualified buyer actually writes an offer to purchase the home, and submits the necessary documentation.

The next step is for the homeowner to do what you just did; ask a friend, family member or neighbor for a referral to a good Realtor (who knows how to handle SHORT SALES), or they could go to the Internet and search.

The listing agent (SHORT SALE REALTOR) whom is interviewed by the homeowner would give a presentation to show exactly how they would market the home. The listing paperwork would be filled out, the home would be listed for sale, exposed to several potential buyers with aggressive marketing and eventually a qualified buyer would make an offer to purchase the home.

Let's say the buyer and seller negotiate back/forth, then settle on a written offer of $315,000. The listing agent would then present that written offer to purchase to the mortgage lender's "loss mitgation" department. The offer would then be circulated through a variety of departments within the lending institution, and IF accepted by the lender as an acceptable offer to purchase, in many cases (but not all) the contract will be considered full payment for the loan by the lender. This is a "SHORT SALE."  There are instances and situations where the bank will still expect the borrower (seller) to be responsible for the deficiency.  By definition, a deficiency the amount the borrower actually owes for the loan they took out, minus the amount of money the bank will "net" as a result of the short sale closing.

That's only the beginning though, as there are additional steps that must be completed in order for the home to actually go to settlement and close. The good part is that by selecting a Realtor who is trained to do short sales, and has experience with this kind of complicated transaction, you can focus on your family while the agent handles all the details of getting your home sold.

 
Please keep in mind three very important factors if they're threatening to foreclose:
1. The bank does NOT want your property! They want their money!
2. The time to act is now! There are a series of things the bank must do to foreclose, and that takes time. But it doesn't take forever, and they WILL take the home if given no other choice.
3. The people from the bank that you've been talking to are debt collectors. If they seem very direct or unsympathetic, don't assume the bank won't work with you on a short sale or other solution. Continue to be respectful and cooperative with the debt collectors. Their job is to help make the situation better.
 
I am a SHORT SALE REAL ESTATE SPECIALIST. To preserve your credit and your peace-of-mind, contact me today 917.723.5645. 
 
**NOTE** I encourage anyone considering the legal or tax implications of a short sale to consult with an attorney and/or a CPA (certified public accountant) for expert advice.
 
 
 
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