THERE IS A POSSIBLE ALTERNATIVE TO BANKRUPTCY OR FORECLOSURE PROCEEDINGS

WHAT IS A SHORT SALE?

There are many ways to lose a home, but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, one of those options is called a "short sale."

Definition: A short sale (also known as a shorted sale) occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.

Example: If the unpaid balance of a loan is, say, $100,000 and a property sells for $90,000, under a short sale the lender might accept $90,000 as payment in full.

When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for a short sale.

Qualifications for a Short Sale

Before you eagerly climb aboard the short sale bandwagon, consider the following to determine whether you may qualify for a short sale. If you cannot answer yes to all four requirements, you may not qualify for a short sale.

1. The Home's Market Value Has Dropped.

Hard comparable sales must substantiate that the home is worth less than the unpaid balance due the lender. This unpaid balance may include a pre-payment penalty.

2. The Mortgage is in Default.

A lender will not consider a short sale if the payments are current. As long as the lender is receiving timely payments, the lender is satisfied.

3. The Seller Has Fallen on Hard Times.

The seller must submit a letter of hardship that explains why the seller can not pay the difference due upon sale, including why the seller has stopped making the monthly payments.

A few examples that do NOT constitute a hardship are:

• Bad purchase decisions. Blowing your paycheck on a home theater system with surround sound does not qualify as a hardship.
• Unhappy with the neighbors. Even if every home on your block has turned into crack houses, that will not qualify as a hardship.
• Buying another home. The lender will not care if you have decided the home is no longer suitable for you or your family.
• Pregnancy. Increasing the size of your family or starting a family is not considered a hardship.
• Moving into an apartment. If you decide to move out of your home, that is a lifestyle decision and not a very good reason to abandon your home.

Examples of hardship are:

• Unemployment
• Divorce
• Medical emergency / sudden illness
• Bankruptcy
• Death

4. The Seller has no assets

The lender will probably want to see a fully completed financial disclosure form, copies of the seller's past tax returns, the last two months of pay stubs and copies of the last two months of any checking/savings account statements.   If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference.

For example, if the seller has cash in a savings account, owns other real estate, stocks, bonds or even IRA accounts, the lender will most likely determine that the seller has assets. The short sales that get accepted are those where the seller has no money or assets.

Many entities profit from short sales, but there is no seller short sale profit.

If after reading about “Short Sales” you believe this will help you and your family, do not be embarrassed to call either of us.  We are here to help and will keep any information strictly confidential.