Short Sales

Have you ever heard the term "Short Sale"  as it pertains to foreclosures?

As an example - John purchased a house two years ago for $400,000. For his financing, he got an interest-only 80% Loan To Value $320,000 first mortgage, and an $80,000 variable-rate second mortgage. Now, two years later, he's been laid off, and he has fallen behind on both first and second mortgages. Combining late fees, interest, penalties and negative amortization, he now owes $435,000 on the two mortgages. He has tried to sell the house but the best offer he has is from Tom for $390,000. He does not have the $45,000 necessary to close the sale.

The only way to sell this home is through a short sale. A short sale occurs when the lender(s) agrees to accept less than the amount of the money owed on the property. If the banks in this example would agree to accept the $390,000, John is released from his mortgage obligations, and Tom has purchased a property for under market value.

The homeowner of a property in pre-foreclosure and the lender(s) must agree and approve of the sale if the short sale is to take place. The banks will not deal directly with a homeowner, an experienced REALTOR® and attorney are needed. So - why would a lender agree to accept less than the amount due them? Due to market conditions, the property may not appraise for enough to support a sale price for the amount owed. A foreclosure is a long and expensive process. It's entirely possible that cutting their losses and selling the property may be less costly in the long run.

If you are going to get involved in a short sale, be patient. It is not a quick process.