Real Estate: What is a Short Sale?

Short Sale, A term used in foreclosure. When the foreclosure happens, which is usually when there are unpaid debts, the property is sold and the lender will accept an amount of money that is less than the money owed on the mortgage. This generally occurs when the lender does not want to waste time on the foreclosure, and also to avoid any added expenses.

The money that is owed when a foreclosure happens is normally pretty tremendous. Not only will the borrower owe money on the back-payments of the mortgage, but there are also late fees and fees to cover the property inspection. There will also be attorney fees involved, and none of this comes cheap. It can all add very quickly, and cost both the borrower and the lender.

Short sales can benefit the borrower greatly. The stress that a foreclosure can cause, and also the time it takes can take it's toll, and combined with the reason of the unpaid payments - recent unemployment, medical reasons etc. can all have a very negative effect. Short sales can also mean that the borrowers credit rating is not as negatively affected as a foreclosure would. It can also lead to reduced humiliation that bankruptcy and foreclosure can cause.

So, how does a short sale work? Well, once payments have been lacking, the borrower should immediate contact the lender to see if they can come to some sort of agreement. There is a number of different things that the lender will have to consider with a short sale and among them are:
Verification of the borrowers income
Bank statements
Hardship letter, a letter stating why the borrower has found themselves in the financial situation they are in, and why the lender should consider the short sale
Market value of the property
Preliminary proceeds sheet that comes with the sale of the property. This involves things such as what the proceeds of the sale of the property (once mortgage is paid off) will be. Short sales lead to this amount being in a negative number.

Once all of the above has been handed in, the lender will then go about his or her decision on the short sale. Foreclosure happens when the short sale is not approved, and if it has been, the lender accepts the loss and the sale goes ahead.

One thing you need to bear in mind is that you will no necessarily get off the hook. The lender has the right to try and get back the loss they have made, and may need you to sign an agreement stating that the shortages will have to be paid off. This is something that you need to discuss with the lender first, as you will need an attorney for this matter also.

You need to remember that if you contact the lender as soon as you come into monetary difficulties, you and they may be able to come to some sort of agreement, or simply refinance the property. If this is not possible, then foreclosure, short sale and bankruptcy will be your only options and these all lead to your credit score being negatively affected. This in turn can leave you with problems finding employment and even more accommodation.

You must keep up the repayments of your mortgage or loan, or you run the risk of losing your home!