When is a homeowner is "short"?
When a borrower owes an amount on his property that when combined with closing costs and commission, is higher than current market value.
When does a short sale occur?
A negotiation is entered into with the homeowner's mortgage company or companies to accept less than the full balance of the loan at closing. A buyer closes on the property and the property is "sold short."
How does the seller benefit?
The seller will not receive any money at closing but they won't pay for commissions or closing costs. They will avoid the emotional toil and the consequences of a foreclosure. It is less damaging to their credit than a foreclosure. There is no tax consequence on the forgiven debt for a personal residence in most instances. Additionally, a foreclosure remains on the public records forever and on a credit history for up to 10 years which will affect your future purchasing power and interest rates.
Why would a lender agree to a short sale?
For the lender, it's a smaller loss to accept a short sale than it is to incur the additional expenses of a foreclosure. Lenders are not in the home ownership business and do not want the house back. The more resources they have tied up in properties, the less they have to lend. Additionally, in a declining market, lenders recognize they will lose even more money when they sell the property later in a foreclosure sale.
If I've already received a Notice of Default, is it too late to do a short sale?
No, but don't delay. Once a Notice of Default has been filed, you are on a count down to losing the house. Often a Certified Distress Property Expert can arrange to extend the foreclosure deadline. They are also trained to price and market your home to sell before the deadline. A short sale can be completed up to the date of the trustee sale.
I haven't missed any payments. Can I still do a short sale?
Typically the lender will not consider a short sale unless a payment has been missed unless a hardship can be shown that will cause you to not be able to make a payment soon. If you have used credit cards, family loans or borrowed from your retirement funds to make payments and are not able to make more payments, those are good reasons for a lender to accept a short sale.
How do I pay the Realtor commissions and closing costs?
The
homeowner doesn't pay for any of the expenses associated with the
sale of the home. Those expenses are paid by the lender.
