If you have heard the term short sale, especially when looking at foreclosure proceedings, then you may be wondering what it's all about. The most basic way to explain it is when the lender that is owed money will accept less than the full payment that is needed on a mortgage when that property with the mortgage has been sold. This benefits the lender, even though they may be losing out on money, and this is because it avoids the time and expense of starting foreclosure proceedings.
When a homeowner has not been able to keep up the repayments on their mortgage, they are in default, and as well as this money that is owed, there will be late fees, attorney fees and property inspection fees, which all adds up, eating the equity remaining in the property. A short sale works out better for the lender, because a foreclosure will mean the lender can lose up to 40% of the mortgage amount, and this is due to all of the costs that accommodate a foreclosure, and a foreclosure can take up to two years to complete.
By way of the borrower, as in the person that owes the money on the mortgage, a short sale will work in their best interests as well; cutting out all of the stress and time taken up by a foreclosure, and a short sale will not have such a massive impact on the borrowers credit score.
When you first figure out that you, a borrower, are having problems keeping up the mortgage repayments on your property, you should contact the lender immediately, and they may be able to come sort of agreement with you to pay it back to avoid both foreclosure and short sales. If the situation cannot be resolved, however, a short sale agreement may be spoken about. Information will need to be taken at this point, and a lot of it will come from you, the borrower. It will involve documentation to prove your income, bank statements, and hardship letter from you, discussing why you would like the lender to consider short sale rather than foreclosure, and also evaluations on the property and inspections. Once the lender has all of the above information, and occasionally, they may need slightly more than listed above, they will then come to a decision on whether or not a short sale would be the best case for that current scenario. If it is not approved, foreclosure will take place, but if it is approved, your property will be sold and the lender will accept that he or she will have to take a loss.
The lender still has some rights to get back the money they have lost, and this may be something you wish to talk to them about, should you be considering a short sale. You may be requested to sign an agreement in which its states that you will have to make repayments to cover the lenders loss, and in this case, you will need to speak to an attorney specific to the field of real estate to make sure that it is in your best interests.
