The Technicalities of Short Sales

June 29, 2009 by Julio
Filed under Short Sale

Short sales are one way of paying off a loan that you cannot afford to repay. Once you are so far behind in your payments with a mortgage loan that you can never recover the situation, it is possible to sell your home for less than what you owe, and for the lender to accept that money as payment for the loan. However, it is not an easy option, and one to be taken only as a final resort: it certainly means you losing your home.

Short sales are permitted by mortgage lenders when they feel that the chances of them receiving full payment for a mortgage loan are small. They are generally agreed to when the borrower has no funds or investments with which to pay the loan, or to meet the monthly payments required. However, before agreeing to such an arrangement they will follow a procedure will involve loss mitigation and careful analysis of your means.

Because of recent financial crises, and the huge number of foreclosures in recent times, mortgage lenders are more willing than ever to come to a short sale agreement in order to recover a large part of their investment, rather than seeing it eaten up in legal foreclosure costs. For many homeowners who have hitherto been unable even to sell their home in order to repay their debt, this is good news. However, there are conditions to be aware of.

All is not as plain sailing as you might believe, because much depends on who else has a claim on your home. There is a hierarchy of claimants, and if you have a second mortgage, or secured loan on your home, Home Equity Line of Credit (HELOC) lenders and others will possible have to agree to the arrangement. Holders of tax liens, such as income or corporate franchise tax, frequently object, and if mortgage insurance was being paid then the insurers might also object, because they might be faced with a claim from the mortgage lender for their loss after the proceeds of the short sale have been paid.

In short, there might be a number of claimants for the proceeds, and they may not agree if they feel they will be receiving less than they are due. Most lien holders are reluctant to forgive loans. That is why this type of real estate transaction has a poor record of success, and why it should be regarded as nothing more than a last resort. Your best chance of success is to have your short sale agreement application made by a mortgage specialist or real estate lawyer, because otherwise your chances of success are low.

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Another thing for you to be aware of is that once you have done all the hard work, advertised the house and got an offer from a potential buyer, the mortgage lender or bank will assess the potential proceeds against what you owe and might not agree to the sale. Everybody that has a financial interest in your home must agree, and if you have taken out loans on your house, and owe money other than your mortgage for which your home could be held as security, you might find problems in short selling it.

Get a professional to help you if that is what you want, but also consider the alternatives to short sales, because there are some that could help you to retain ownership of your home. Although it will not have the same impact on your credit rating as a foreclosure, a short sale will still be recorded a settlement and will remain on your credit report for the statutory period. If you would be requiring credit in the future, short sales are better avoided.

Therefore, if you are having problems paying you mortgage you should first inform your mortgage lender and try to get a mortgage modification, but if you cannot get agreement on that then a short sale might be your only way out of being saddled with debt for the rest of your life. In either of these two cases, a mortgage expert will be able to help you to come to the best agreement with your lender by using their experience and expertise to take you through all of the legal intricacies involved, with a higher probability of success.