What is a short sale?

[Moe Bedard]

A short sale occurs when the net proceeds from the sale of a home are not enough to cover the sellers’ mortgage obligations and closing costs, such as property taxes, transfer taxes, and the real estate practitioner’s commission. The seller is unwilling or unable to cover the difference.

Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation.

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 debt amount.

Creditors, their surrogates, and those who politically benefit from the mortgage industry -- especially those in the real-estate, mortgage servicing, and banking -- wrongly portray short sales as difficult to complete or morally questionable^{[citation needed]}. This is simply untrue if the value of the underlying asset, a home, has fallen dramatically and the debtor has limited assets. Short sales are extraordinarily common in standard business transactions in recognition that creditors are not doing debtors a favor but, rather, engaging in a business transaction when extending credit.

Some — although by no means all — short sellers may also be in default on their mortgage loans and be headed for foreclosure. However, home owners who bought at the top of the market or who took out large amounts of equity with a refinance and who now need to sell because of divorce or job transfer may also find themselves upside down, owing more than the home is currently worth when closing costs are factored in.

Information from Wikipedia and Realtor.org

[mom2three]

I have a construction loan with a private money company which is now had a notice of default filed. I know that I am not going to try to keep the home as it is only 80% complete with no more funds available. The company has offered to short-sale the property rather than go through the foreclosure process. What is the benefit to me???

Thank you for your insight!

[shakazulu12]

No foreclosure on your credit and getting the situation handled a lot quicker are pretty much the only benefits. You will not be allowed to profit at all from the sale. There is a good chance you can get them to waive deficiency rights, particularly if they are offering to do a short sale.

[Moe Bedard]

True. But maybe there can be a cash for keys negotiated or a waiver of deficiency judgment in the process if you have assets.

[sqa4life]

I live in WA state. I have one loan with CW. I am almost 2 months behind. I am planning to hire an agent for short sale.

current house value: $300k
Current ballance: $343k

Any advise?

[babbles]

I have a rental home in GA that has a 1st mort, equity loan, and a LOC. The total balance is 277k and the home according to zillow is worth 181k. My tenants just walked out on me and I had been trying to modify my 1st through EMC/ JP Chase but they have been just stringing me along for the last 9 months. I wondering if I can short sale the property. I don't know if it's worth it to stay in this adjustable ARM for the next 25 years.

The 1st balance is $164,500, the 2nd is $51,344 , and the LOC is $59344. Would this be considered a short sale attempt even though a short sale of $181,000 would satisfy the 1st? I would attempt to negotiate out the other liens because my wife's name is attached to those other liens and I don't want to ruin her credit. Any advice or suggestions would be greatly appreciated.

[AaronA]

Originally Posted by mom2three

I have a construction loan with a private money company which is now had a notice of default filed. I know that I am not going to try to keep the home as it is only 80% complete with no more funds available. The company has offered to short-sale the property rather than go through the foreclosure process. What is the benefit to me???

Thank you for your insight!

There are several benefits that can be realized from a short sale instead of a foreclosure:

• No "forelcosure" on your credit report for 7 years
• Statement of "Account Paid, Not in Full", or "Account Settled" on your credit report with MUCH LESS impact on your credit rating.
• The lender will always lose LESS in a short sale, resulting in a high likelihood of NO Judgment being filed.
• The lender will always lose LESS in a short sale, resulting in a smaller taxable event for you, i.e. 1099 being filed with the IRS...IF the lender even chooses to file one.
• You can stay in the house throughout the process which can take many months to complete

Best,
Aaron

[simeonah]

Originally Posted by mom2three

I have a construction loan with a private money company which is now had a notice of default filed. I know that I am not going to try to keep the home as it is only 80% complete with no more funds available. The company has offered to short-sale the property rather than go through the foreclosure process. What is the benefit to me???

Thank you for your insight!

Another benefit would be that, with a Short Sale, you will be able to obtain conventional financing within two years with a reasonable interest rate. (FHA) A foreclosure you will have to wait 5 - 7 for a conventional mortgage at a decent rate.