What is a short sale you ask?

A short sale is an agreement from your lender that if you sell the home, the lender will accept whatever the home sells for as full payment for the loan. To understand the process, we will consider the hypothetical scenario in which you purchased a home for $500,000 in 2004. The current loan amount is $400,000, while the current market value of the home is $350,000 and the cost of sale is $50,000. If the home is sold today, you will get $300,000 from the sale. Because the current loan amount is $400,000, you will be be short $100,000. If the lender agrees to take the $100,000 loss, you can complete the sale of your home, “short-pay” the loan balance, and walk away. Your credit will take a hit, but the damage is usually not as severe as a foreclosure.


 Why would lenders ever agree to a short sale? Foreclosures are expensive and can take many months to process. Even if the lenders eventually get a judgment against the borrowers for the “Deficiency,” actually getting the money back can be very difficult. A short sale may be more cost-effective in the long run. Of course, the lenders will want proof that the borrowers really can’t pay their mortgage. Stating that the mortgage is upside-down is not sufficient. Borrowers also need to prove that they are suffering from genuine hardship such as loss of income, health expenses, or some other unexpected reasons for non-payment.


 Borrowers will need to give lenders copies of their income tax statements for the past two years, bank statements, mortgage statements, bills, and pay stubs or other proof of income. If a short sale seems to be the best option for your situation, you should contact an experienced real estate investor as soon as possible. In the wrong hands  A short sale can take four to six months to process, especially given common causes for delay like bureaucratic dead ends, lost faxes, and indecision on the part of the lenders. I have seen some that are done in 40 days, but you need a seasoned investor to pull those off.


 Short sales are a viable option for those in financial distress, and are becoming increasingly more popular in this upside down economy. I read a real estate report this week that said short sales accounted for 15% of the real estate transactions performed in the month of January. Do your homework and decide whether a short sale is an option you wish to look into. If your answer is yes contact me and will discuss it.