Short Sale

What is a short sale?

A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure. More and more homeowners are looking to this practice as a way to avoid a costly foreclosure. If a property goes into foreclosure, the lender can lose up to 40% of the mortgage amount because of the extra costs involved with foreclosing on a property. Also, foreclosing on a property can take up to one year in some states. Therefore, it is sometimes in the best interest of the lender to accept a short sale.

It can also be in the best interest of the borrower to not have to endure the time and stress of a foreclosure and their credit may not be as adversely affected as it would with a foreclosure.

How are short sales done?

There is no uniform way that banks do short sales. Each bank has its own process. Often the processes are time consuming, particularly with banks or lenders that are dealing with hundreds, if not thousands, of loans in default. Bear in mind that lenders do not want to foreclose on properties, because they then have the properties in their inventory and they have to pay to carry those properties. Convincing a lender to short sell a property can be very difficult.

While there is no uniform short sale process, the lenders usually require the borrower to submit a lot of information in order to consider the short sale. Among the documentation generally required is income and tax information, bank statements, a hardship letter, information regarding the fair market value of the property, the listing agreement for the sale of the property and information regarding the status of the attempted sale of the property.

Are there any other issues?

The lender can still come after the Borrower for the difference or the deficiency. Also, there may be tax issues with the Internal Revenue Service.

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