What Is A Short Sale?

What Is A Short Sale?

In Real Estate a Short Sale is the sale of real estate in which the proceeds from the sale fall short of the balanced 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 banks 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 typically have a department 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 mitigated losses.  The majority have a predetermined criteria.  Junior liens, such as second mortgages, home equity lines of credit and home owners associations may also need to approve the short sale.  Other entities involved 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 most likely 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.

What To Look For

Experience is most important.  Unfortunately, the majority of Real Estate Agents have little to no experience in the Short Sale process.  Real Estate Agents have experience in selling homes, not negotiating with lenders.  Negotiating short sales and closing short sales are extremely complicated and very time consuming.  The Real Estate Agent should be up to date on current policies and guidelines by lenders as well as having a good understanding of our States laws.

Many hours are spent on the fine details of the transaction as well as on the phone!  Care should be taken to represent their “Sellers’ best interests.  Many agents seem to think that they should be representing the Banks best interests!

Because of their lack of knowledge in the short sale process, often times the Agent will ‘hire’ an outside company to negotiate your short sale.  This is fine except that most of these companies have no idea of the local market.  Some of these companies will even offer to ‘buy’ your homes and then turn around and sell them at a profit.  Most times however, this doesn’t happen and the sale fails.  Then you are left with the foreclosure.

Still other well-meaning Agents will collect several offers on your property and send them to your lender UNSIGNED by you.  Your Lender is looking for a fully executed purchase and sale offer– not a what if offer.

You deserve and should require the knowledge and experience from an Agent that has experience in short sales.

Debbie Atwood

Making A Splash in Snohomish County





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