Short sales are a type of real estate transaction where a home sells for less than the current mortgage loan balance. Short sale marketing can be a viable option for the homeowner to avoid foreclosure. The process involves more time and skill than a traditional real estate transaction.
A homeowner experiencing financial hardship and having fallen behind on mortgage payments, may have their loan placed into a pre-foreclosure status. During pre-foreclosure, the homeowner should actively work with their mortgage lender to discuss options based on their specific situation, including providing the lender with proof of hardship. In the best-case scenario, the lender will permit a loan modification. If a loan modification is denied, however, a short sale may be pursued as part of a loss mitigation option for both the mortgage company and the homeowner.
A team of professionals is critical to a successful pursuit of a short sale option. A real estate agent will price the home according to market conditions, list, and market the home to obtain a suitable offer. Once an offer is accepted, the seller’s attorney will handle negotiations with the mortgage lender, along with preparing the customary legal documentation for a residential sale. The negotiation process may take several months and must ultimately be approved by the “short sale” mortgage lender. If the home is encumbered with a first mortgage and a second mortgage, such as a Home Equity Line of Credit, negotiations will take longer as both lenders will need to approve the sale. When the short sale is approved, the closing typically takes place within 45 days.
The advantage of the “short sale” is that it costs nothing out-of-pocket to the sellers. Costs associated with selling a home, such as real estate agent commissions, attorney fees, title costs, transfer stamps, and taxes are paid with the proceeds from the sale as the mortgage lender discounts the payoff to which it otherwise would have been entitled.
The primary goal of a short sale is to give the seller a fresh start without being financially responsible for any previous mortgage deficiencies, while avoiding using bankruptcy relief as an option. In some instances, depending on the mortgage loan program, homeowners may receive some government benefits to help with things like relocation costs.