Blog, What is a Short Sale?

Why Choose a Short Sale?

For those of us who have been hearing the term “short sale” and don’t quite understand what it means, a short sale is a legal lender approved solution designed to assist those home owners who are financially strapped to get out from under their mortgage debt.  Simply put, a sluggish economy has brought down the values of homes in the market place.  Many home owners are forced to sell their homes as soon as possible due to a combination of such factors as loss of income due to a job cut, divorce, or re-setting of adjustable rate mortgages to a higher rate, making the mortgage payments unaffordable.  They are in no position to wait for the market to shift so they are compelled to work with a Realtor who understands this stressful problem. The Realtor negotiates with the lender to accept less than the full amount of the mortgage.

An example of a short sale would be if a home owner owes $500,000 on their current mortgage and their home is only worth $490,000. The lender in this example would agree to take a short fall of $10,000 at closing. In many cases the mortgage holder may completely wipe out the debt and the home owner does not have to repay the 10,000. It needs to be emphasized that the debt is wiped out in most cases but not all. Some lenders may require a seller to sign a note and repay the debt over a certain amount of time.

The home owner benefits in this situation because they get out of a sticky financial mess without going to foreclosure which can seriously damage your credit. Generally speaking if your home is foreclosed on you will not be able to get a loan to buy another home for five to six years. With a short sale in most cases you will be able to buy another property in two to three years. In either event your credit scores are going to take a hit.

You may be thinking why would a mortgage holder want to allow a short sale? There are a number of reasons, most notably the cost involved for the lender going through a foreclosure proceeding. The mortgage holder when all is said and done can easily spend $40,000-$50,000 going through a foreclosure. The short sale avenue can save the lender money they would otherwise lose.

With property values continuing to drop in Massachusetts there are many more lenders who will consider the short sale procedure.

It is important to remember that banks are not in the business of owning Real Estate in their portfolios and would much rather assist a homeowner than to take ownership of their home. With a short sale in place the lender is going to avoid carrying costs as well as a myriad of legal fees.

In order to do a short sale there must be some kind of financial hardship. Just wanting to walk away and get a cheaper house is not a reason to do a Short Sale and most likely the lender will deny the short sale request.

Valid reasons for a short sale that a bank may accept include loss of job, loss of income, divorce, death of spouse, business failure, relocation, military service, large medical bills and others. If there are other assets in place that could satisfy the debt the lender may not comply with a short sale.