What is a Short Sale?



Are short sales short?

A short sale is the sale of a property at a price lower than the total amount of debt owed on the property. That debt can be owed to more than the primary mortgage lender, such as second mortgage, a mechanics lien, or a tax lien, placed against the home. When these debts become greater than the value of the home, a homeowner may choose to sell the home at a loss. To do a short sale one must have all the creditors agree to receive a decreased payback. The creditors will typically agree to this if they foresee that a home in unlikely to increase in value or that the cost of foreclosure would cost more than the loss incurred by the short sale.


What if my home is not worth enough to payback my creditors?

This is the reason for a short sale. Creditors must agree to take a hit on the return of their investments in order to complete the short sale. These types of transactions often involve a lengthy and paperwork intensive process because most creditors are hesitant to sell a property for less than it is owed, if they there is another way to get more. However, they may be motivated if a seller is facing foreclosure. The lender stands to lose more money going through the foreclosure process than if they let it go in a short sale.


What happens to the outstanding balance that is not covered by the sale?

If the creditors agree to a short sale, they agree to release the remainder of the debt owed to them. This sort of outcome is often preferred by owners facing foreclosure because it means they won’t have a foreclosure judgement on their record, and it means they won’t have to pay money to get out of the home.


Why don’t more people buy homes through the short sale process?

Banks are money making institutions, their goal is to make money when they lend it to a home buyer, and to sell it short is not something they would like to do. They lose money. The trick for a short buyer is to offer enough money that the bank saves money compared to a foreclosure, but also get enough of a discount to make the extra effort worth going through a short sale. This will help the creditors such as the banks, feel that they are making the best choice for their lost investment. They may be losing out on a lot or a little bit of their investment but by offering enough money to make it better for the bank to short sell than to foreclose will make all the difference for both parties. The bank will lose money but not as much as it otherwise would if it took the home to foreclosure. If you would like to purchase a home that is listed as short sale, please contact Jason at the Law Office of Jason A. Borg for a consultation and learn what we can do to make the process go smoothly.



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