What is a Short Sale?
A Short Sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt. Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.
Why a Short Sale?
A Short Sale can also be the best option for homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.
• Avoids the lengthy and often embarrassing legal process involved in foreclosure.
• Less damaging to the seller’s credit than a foreclosure, or a deed in lieu of foreclosure.
• Reduces the amount of potential loss to the investor.
• Gives the seller some degree of control over his/her situation.
Do You Qualify For a Short Sale ?
The homeowner must have an involuntary hardship. Examples are divorce, illness, unemployment, under-employment, death, military deployment, and disaster. The hardship can be temporary or permanent. The homeowner does not have to be in default on their mortgage; however, the circumstances of the hardship make a default eminent at some point in the future. The Short Sale must be an “arm’s length” transaction. The property may not be sold to anyone the seller has a close personal or business relationship with, including family, friends or neighbors.
HAMP and HAFA Programs
Your lender may be participating in the government’s Home Affordable Foreclosure Alternatives Program, or HAFA (which is a part of the Home Affordable Modification Program or HAMP). This program provides financial incentives to servicers and borrowers who utilize short sale or a deed in lieu (DIL) to avoid foreclosure on a HAMP-eligible loan. You can look up whether your lender/servicer is participating in the government programs by following this link: Lenders Participating in HAFA.
Although the HAFA process may be complex, it may provide benefits to you that were not available previously. To participate in HAFA, you must utilize a licensed real estate agent. For your own benefit, make sure that you select an experienced short sale agent/negotiator.
Be persistent and get as much information as you can. I liken getting help to a salmon swimming upstream to spawn. Some will tire and just give up, some will go the wrong direction and wind up at a dead end, and others will fall prey to those who are waiting to take advantage of them. Then there are those who will feel the satisfaction of attaining what they set out to do.