How a short sale works

                                                                                         

A short sale is when a mortgage lender agrees to allow a home owner’s property to be sold for less than it’s actual market value. The lender will discount a mortgage balance to give the home owner an opportunity sell the property and turn over the proceeds to fully satisfy an outstanding loan balance. In this instance, the lender has complete control whether to approve or disapprove the sale.

Most often, the lender will approve a short sale if the home owner owes more than the current market value, also called being “upside down.” Another reason for a short sale is to avoid foreclosure. Avoiding foreclosure can be a wise decision for the lender if the home owner has encountered a serious financial hardship or more importantly, if a short sale will result in a smaller financial loss than through the foreclosure process. Also, a short sale is a better option for the home owner for a number of reasons. First, even though a short sale does show up on a consumer credit report, it is far better than a foreclosure. A foreclosure creates a long-lasting back mark on your credit report and will drop a home owner’s credit score approximately 300 points. Also, the process is somewhat faster and less expensive than a foreclosure creating a superior choice if the market has softened.

While a home owner may think a short sale is an easy way out of an “upside down” property investment, lenders will not even consider a short sale until a notice of default has been issued and a valid reason has been presented to the lender. Typically, the lender will go over the home owner’s situation very thoroughly before approving a short sale. A loss mitigation department wills asses the situation and do data analysis before approving the sale. Most often there is a hefty amount of negotiating before a sale is final to ensure the lender is fully satisfied.

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