The Short Sale, A Misunderstood Transaction

By Author: Nick Adama
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A short sale is one of the most misunderstood transactions in real estate and foreclosure. I ask people all the time if they know what a short sale is. Most of the time, they say yes and when I ask them to describe a short sale to me, their understanding is often quite far from reality.

While lenders don't necessarily approve of short sales, they don't like to foreclose even more. A home foreclosure not only ruins the borrowers credit and it's a total loss for the bank but it also affects the values of other homes in the neighborhood.

For a homeowner, a short sale is a way to stop foreclosure and save their credit. Credit repair will be much easier after Short Sale than after foreclosure. This is because a short sale generally remains on your credit for 2 years while foreclosures are present for 5-7 years.

Although a short sale is not always the best choice for a lender, it does generally help them collect as much money as possible when a home goes into foreclosure. Most lenders calculate their loss on a foreclosure as high as 50%. If they can sell a home, using a short sale, for 70% - 80% of its value, ...
... this is a 30% - 40% improvement over a complete foreclosure.

When attempting a short sale, it doesn't matter what your income level is, or what the market value of your property is. Virtually everyone can attempt a short sale. It's just a matter of negotiating with all the parties involved to arrange the best possible outcome to a bad situation. Even with more than one mortgage and even if your home is completely upside down, a short sale can help all parties.

You must keep in mind though, a short sale may not be your best option. In many foreclosure cases, we are seeing banks agree to mortgage modifications that include lowering the payoff on a mortgage. In cases like these, you may be able to keep your home with a reduced monthly payment. Even in modifications where the amount owed is untouched, you may still be able to keep your home with a good modification.
A foreclosure modification is when the bank agrees to modify the old terms of the loan to help out with your new financial situation. This may mean lowering your interest rate, extending the term of your loan, or even reducing the total amount owed on the mortgage. Basically, this is like refinancing your home and getting a affordable new monthly payment.

But if you've already reviewed all the other stop foreclosure solutions and a short sale is your only answer, then you should at least have an idea of what a short sale is.

Imagine homeowners who finds themselves unable to pay their monthly mortgage payments. With the economy in such bad shape, times have gotten tough and house payments are nearly impossible to make for many people across the nation. After {{{about 90|90|around ninety days of non-payment, the lenders will start the foreclosure process.

An increasing problem is that, oftentimes, neither homeowners nor servicers know what stop foreclosure options are available. With foreclosure quickly moving in, the homeowner decides it's in his or her best interest to try to list the property for sale, so they contact a Realtor to put the house on the market.

The main issue is, when the home actually sells, it might not bring enough money to payoff all the mortgages and liens. For example, the mortgage(s) payoff is $250,000, but the home only sells for $190,000, the home owner may be required to pay the remaining $60,000 that is owed. This is where a short sale can be very effective. The servicer has to agree that, based on the homeowners hardship proof, they will agree to accept the $190,000 as payment in full and erase the outstanding $60,000 that is still owed.

In foreclosure situations, it's important to seek help from a foreclosure expert to make sure the short sale is handled properly. The last thing you need when facing foreclosure is to find out, several months after losing your house, that you still owe $60,000. Obviously, just because your lender accepts a short sale, doesn't mean they wont try and collect the balance. This is something that needs to be negotiated beforehand and needs to be documented in writing. In general, most people do not have the knowledge or ability to perform a short sale without the help of a foreclosure company. The entire process can also be very time consuming and you'll quickly understand that the tiny amount charged for performing a short sale is well worth the price.

But always be aware, there are several other options that can prevent foreclosure when facing foreclosure. Loan modifications are happening much more often and a new mortgage may still be an option for some. Regardless of the situation, it's always best to have a back up plan and to speak with an expert to find out all your options to save your home or credit from foreclosure.
Nick is the writer of the ForeclosurefishStop Foreclosure Blog, The blog helps homeowners who are facing foreclosure and need help stopping foreclosure.