is a short sale?
A. A short
sale is when a bank or mortgage lender agrees
to discount a loan balance due to an economic
or financial hardship on the part of the
mortgagor. This negotiation is all done through
communication with a bank's Loss mitigation department.
The home owner/debtor sells the mortgaged
property for less than the outstanding balance
of the loan, and turns over the proceeds
of the sale to the lender in full satisfaction
of the debt. In such instances, the lender
would have the right to approve or disapprove
of a proposed sale.
Q. Why would someone choose a short
A. A short sale typically
is executed to prevent a home foreclosure.
Often a bank will choose to allow a short
sale if they believe that it will result
in a smaller financial loss than foreclosing.
For the home owner, the advantages include
avoidance of having a foreclosure on their
credit history and the partial control of
the monetary deficiency. Additionally, a
short sale is typically faster and less expensive
than a foreclosure. In short, a short sale
is nothing more than negotiating with lien
holders a payoff for less than what they
are owed, or rather a sale of a debt, generally
on a piece of real estate, short of the full
Q. If I'm underwater
on my mortgage -- if I owe more than my
home is worth -- and I'm interested in
pursuing a short sale, how do I get started?
A. The first
thing you would want to do is get your home
listed with a Realtor and determine what
a fair market value for your home is. You
want to price it to sell because you're in
trouble, and we want to sell your home as
quickly as we can. You're going to list
your home like any other transaction, but
you're going to disclose in the listing and
to all prospective buyers that this is a
short sale. Because it's a short sale, closing
dates are speculative because we need lender
approval. We don't know how long it's going
to take the lender to agree or give us an
answer of a short sale.
Q. It must be frustrating for people.
How long can this take?
is no legal time limit for how long the bank
can take to answer you. I've seen short sales
drag on for six months. That's a long time
for a buyer to wait.
Q. What do you
need to get a short sale accepted?
A. The bank
requires from the seller financial paperwork
so the bank can determine whether they're
going to grant your request. They want to
see that in fact you're in financial hardship
and you can't afford to keep the home anymore,
that your income and your assets won't allow
you to keep making payments. In this instance, they
usually require a hardship letter -- they
want the homeowner to explain how come they
can't afford the mortgage that they agreed
to accept responsibility for. Did they lose
a job? Was there an illness? They want to
see your bank records, your tax returns, and
your income statements.
Q. How have banks'
attitudes toward short sales changed?
sales have become very commonplace. Banks
have online procedures and departments now
that are devoted to short sales. Typically
if they continue to wait until after foreclosure,
it takes longer and they'll get less money. If
the bank waits, they foreclose. That takes
time. Then they have to market the home and
try to find a buyer. They have to maintain
and be responsible for the property in the
interim. All of that is expensive for a lender. At
the end of the day we typically see bank-owned
properties sell for less than short sales
Q. What if
I have a second mortgage?
mortgages are difficult because both lenders
have to agree in order for the sale to take
place. What happens is the first mortgage
generally wants all of the money to satisfy
If there was a foreclosure,
the first mortgage would get paid and the
second mortgage would get anything left over,
likely nothing. The first mortgage wants
to allow very little to the second mortgage.
Q. Will this affect
my credit rating?
A. A short
sale does not adversely affect a person's
credit report beyond documenting the short
sale as "foreclosure proceedings started".
But it does count against a person's credit
to about the same degree as a foreclosure
by similarly remaining on the report for
7 to 10 years and, most often, prevents the
issuance of any mortgages for a number of
years. While it is frequent if not common
for a lender to forgive the balance of the
loan in question, it is unlikely that a lien
holder that is not a mortgagee will forgive
any of their balance. Further, it is common
for a lender to omit updating the zero balance
and settlement option on the mortgagor's
credit report, or even flat refuse to do
so "due to their financial loss."