WHAT IS A SHORT SALE?

A short sale is conducted when a homeowner owes more than their house is worth and cannot continue to pay the mortgage.  In these cases the lender agrees to take less than what is owed on the balance of the mortgage(s).  The "short" is the discount that the bank agrees to in order to sell the house rather than go all the way through the foreclosure process.

Why would the bank agree to take less than the full balance?

If a homeowner can show a true hardship, such as a medical setback, job loss, or other change of financial situation to prove that they can no longer afford the home, a lender may be willing to accept less than what is owed.  The lender recognizes that if the house has a mortgage for what the house is worth or more, it will be very difficult to get that money back from the owner.  In addition, if the property is in need of repairs, the bank would have to consider rehabbing the house to get it up to market standards.  If the owner has found a buyer for their house, the buyer may be able to negotiate a discount.  The lenders in many cases will do this beause it costs them a lot of money in legal fees and other fees, to continue to hold on to a property that in the banks eyes, is a "non-performing asset".  It makes better sense for them to sell it at a discount and get some of their money out, rather than going through foreclosure, or possibly the owner's bankruptcy, which could take months or years before the house is sold.   

How are short sales conducted?

Short sales are very complicated and require a lot of time, energy, and expertise.  The  advocate/investor will first request an authorization to be able to speak to the bank.  After that there are a series of financial documents along with a "hardship letter", that must be submitted.  In most cases the lender will arrange for an appraisal to be done on the property.  This appraisal will offer an "as-is" value of the property and usually an "after repair value", as well.  An Agreement of Sale is submitted and the negotiations begin.  There is no guarantee that a lender will accept the short sale or offer from the investor.  

In addition, homeowners need to be aware that the lenders sometimes will issue either a 1099 for the "short/discount", or they can pursue a deficiencly judgement against the owner.  Recently we have been seeing some new tactics from lenders who are having owners sign a promissory note as a condition of short sale approval.  This allows lenders to get around having to take the legal action necessary to file for the deficiency judgement.  Homeowners must be informed of these different approached by lenders before they decide to go forward with a short sale.  It is advised that homeowners seek professional counsel when making this decision.  We can refer you to reputable sources. 

Should you as a homeowner find you can no longer pay your mortgage and you owe what your house is worth or more, please call me.  I would be glad to discuss your situation and see if I can help.  215-741-4020 x117 (the system will find me in the field), or e-mail me at patty@realestateontheair.com

The message here is that if you act with enough time, you may be able to avoid foreclosure and the Sheriff Sale, but you must act quickly.  I have seen homeowners lose everything as they were embarassed, confused, in denial, or just plain scared.  Please call me to see if I can help--If I can't, I will refer you to reputable resources.