HAFA

What is a Short Sale? 
This means that, at the listed price (or offered price), the proceeds from the sale will not be adequate to pay all liens and costs of sale.  Any offer made that does not fully cover the existing amount(s) owed to the lienholders(s) plus the costs of sale could be subject to lienholder approval, which approval may be exercised at the sole and exclusive discretion of the lienholder(s)".

Should I do a Short Sale?
It depends.  
- What is your ability to repay the loan at the current rate and terms? 
- Have you had a life changing "hardship" that precludes you from paying your mortgage(s)? 
- Were your current loan(s) for the purchase of the property, or did you refinance? 
- If you refinanced, how long ago was it and what did you do with the proceeds of the loan?

All of these are considerations the lender(s) will evaluate.

On the Positive Side-
A Short Sale allows you to control the amount of the short-fall between what you owe, and at what price the property sells, versus the property being taken in Foreclosure. 

For example; Let's say you purchased the property in 2005 for $500,000 refinanced it and now you owe $750,000 ($600,000 first mortgage and $150,000 second).  And for this example, let's say the the property is now worth $650,000.  If you sell it short for $650,000 after closing costs, past due mortgage interest payments, etc. that would result in a "net" amount of about $585,000 - the shortfall would be $165,000 and the second mortgage holder in this case virtually gets wiped out (the agent negotiates between the 1st and the 2nd so the 2nd gets minimal payment from the 1st to release their lien).  Oftentimes the shortfall will be negotiated to be "forgiven" with a full release of the note(s) at closing by the Realtor.

In a Foreclosure, using the same $ scenario as above, after 6 months of non-payment, the property is taken by one of the lenders, typically the 1st lienholder and is either sold at auction or listed for sale with an REO agent (hired by the Lender).  At this point, there are significant legals fees plus the 6 months of mortgage payments that were not made that have been incurred which are passed along to you as additional debt.  Let's say that the final selling price by the lender is $575,000 because they want it gone fast they will price it aggressively.  The "net" to the lender would be about $529,000 less legal fees, past due mortgage interest payments, maintenance & utilities while the property is listed for sale, etc. So in this scenario, the shortfall would likely be about $250,000.  If the loan(s) were a refinance, the lenders will look to recover their losses quite aggressively.  If they were "puchase money loans" and the debt is forgiven, there may be some relief under legislation passed in 2008 of the Income Tax Burden only, by the IRS.

Short Sales take a while to get approved after the seller has accepted an offer - typically 45 - 90 days.  This is where the experienced Short Sale Realtor "earns their stripes".  They can help the process move quicker simply because they have done so many of them and know what's expected by the lenders.

Foreclosures take a while too.  Typically 6 months of non-payment of the mortgage before foreclosure and trustee sale can occur.

In all scenarios, you should first consult with your Attorney and Financial Advisor and always, always, always, use a Realtor who is experienced in Short Sales.

Good luck and feel free to contact me with any questions. (please read the "Testimonials" section of this website)