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Introduction to Short Sales

A Short Sale occurs when a property is sold for less than the amount owed on the Mortgage and the Lender agrees to accept that amount as satisfaction of the Mortgage still owed. It is important to note that two things have to occur to qualify for a Short Sale:

  1. the home must be under contract with a buyer and
  2. the Lender must accept that discounted payoff amount

The objective of a Short Sale is to obtain written confirmation of the recordation of  Release of Satisfaction of Mortgage from the mortgage Lender upon receipt of the funds.

Benefit to the Parties

The Seller:

  • The Seller will maintain their credit score by not having a foreclosure on their credit report and that most Short Sales are recorded as having been satisfied.
  • 1099 vs. Deficiency Judgments - A short Sale is considered a payoff that satisfies the debt and in some states Deficiency Judgments are not allowed (Consult your Accountant and or Real Estate Attorney)
  • The Seller can continue to live in the home through the process while not making payments.
  • Most Seller's believe that it is morally correct to pay their debts.

The Lender:

  • The Lender does not have to go through a lengthy and costly foreclosure process. Banks understand the concept of " Loss Severity, " which is the rate at which they expect to lose money by going through the foreclosure process. The costs to forclose can run 40% to 45% of the loan amount.
  • " Toxic Loans " are removed from their portfolios.
  • The cost of REO's are reduced. The Lender does not have to inccur costs for listing and marketing the property throug a Broker or REO servicing company.
  • The Lender does not have to deal with issues surrounding the eviction process including having to pay for the owners cooperation to move out.
  • The Lender does not have to spend the time and money to correct problemsd with the home due to defect or homeowner's frustration and acts of desperation destroying the home.
  • Eliminates having to sell the home as an REO for the lesser amount than the proceeds of the Short Sale in a declining market.
  • Saves time to work on other properties.