What is a Short Sale?

Posted on June 11th, 2009 by saman

A short sale is a better deal for the owner of a home facing foreclosure although neither is desirable. Because of the state of the economy foreclosures are becoming more prominent. The home owner cannot do the negotiating, it has to be a third party because there is already a legal written contract involved between the owner of the property and the lender; because of this the lender has to have written permission from the borrower or home owner to release private information so the short sale can be conducted.

If the short sale is being conducted by a bank the loss mitigation department will handle it. The decision to discount the loan depends on the financial condition of the loan owner. The short sale is done to prevent foreclosure and the lender will only do it if they think the short sale will be of more financial benefit to them then the foreclosure. There will be a loss of money from the foreclosure itself and an additional cost to carry it. The lender will try and determine what the selling price will be through an appraisal or another way is through a BPO which is a Broker Price Option.

When the lender agrees to accept a discounted payoff it means the lender will accept less money then was originally specified in a contract. This is the short sale. This will still affect the home owner’s credit rating but not as bad as the foreclosure. Fannie Mae and Freddie Mae will not lend money for a period of five years after a foreclosure and for two years after a short sale. A short sale will remain on the credit report for seven years. However, another mortgage might be given in a shorter period of time under some circumstances.

It is an advantage to the home owner not to have the foreclosure for various reasons. The short sale is less expensive than a foreclosure; it sounds better on record to have a short sale then to have gone through a foreclosure everything considered it’s a better way to go. The foreclosure carries hidden taxes that are not generally known about and can cause serious trouble to the property owner and help keep him in debt if he or she is able to pay them and cause even more serious problems if they cannot be paid.

The lender may take a short sale or accept a request for one even though a Notice of Default has not been recorded. Because mortgage lenders have taken tremendous losses and are themselves suffering from the current crisis they are much more willing to accept short sales. There are more distressed home owners in need of short sales then there have ever been. The opinion of lenders regarding short sales differs. Some of them are more willing to accept anything they regard as a reasonable offer. Sometimes there are different levels of approval that must be gone through to obtain a short sale and a junior lien holder actually can stop the short sale.