A Short Sale is the sale of a home which the homeowner owes more on the mortgage balance than current buyers are willing to pay for it. To accomplish this all lenders and lienholders must agree to accept less money than they are owed.
A short sale can be the answer for homeowners who owe more on their home than it is worth and want to sell. In previous years, it was more difficult to convince a bank or lender to accept a short sale. Today, however, banks and lenders have become much more acceptable and understanding when it comes to short sales. The reason banks and lenders have become more willing to do a short sale is that their policies have changed, investor guidelines have softened and the government has offered incentives to parties involved. Your chances of getting your short sale approved with a full waiver of deficiency has never been better than today.
Another definition of what short in short sale means:
- A homeowner is ‘short’ when the amount owed on a property is greater than current market value.
- A short sale occurs when a homeowner or an authorized third party (typically the real estate agent) negotiates with the homeowner’s mortgage company to accept less than the full amount still owed on the loanat closing. Once approved, the buyer and seller of the property continue the inspection and escrow process and close like a traditional sale.
For homeowners to qualify for a short sale, they typically fall into any or all of the following circumstances:
- Financial Hardship: Some kind of negative change to your financial well-being. For some people it is a reduction or loss of income, some do not lose any income but incur greater expenses, like medical bills. Other approved hardships have been high debt ratios from excessive credit card payments.
- Monthly Income Shortfall: Meaning that if you were to pay all of your bills, including your mortgage, you owe more money than you make every month. Your lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency: Having more liabilities than assets, meaning that you owe more money than you have cash money or things you own with cash value, some exclusions apply, including retirement accounts.
- Contribution: For higher net worth homeowners lenders may want to know that you are willing to contributing to the deficiency balance, however this is not always the case.