Attention homeowners!

There is a lot of information in the media right now about the housing market, about the government’s policies and procedures for helping homeowners facing tough times, and about options available when you are having trouble making mortgage payments.

In this short article, I will attempt to clarify one of the options available: a short sale.

A short sale is when a bank or mortgage lender agrees to accept a discounted payoff on a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank’s Loss Mitigation department. The homeowner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender has the right to approve or disapprove of a proposed sale.

Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower’s financial situation.

A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the homeowner, the advantages include avoiding foreclosure on their credit history. And, in the state of California, there are new laws that provide additional benefits to homeowners (Senate Bill 458). Additionally, a short sale is typically faster and less expensive than a foreclosure. In fact, many banks have short sale incentive programs because they realize that a short sale might be the way to go.

In short (pun intended), a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.

Currently, short sales have become increasingly more common with defaulted mortgages on the rise, and a significant number of subprime loans adjusting over the next few years.

A short sale is one of many options available to those who are having trouble making ends meet and are “upside down” on their mortgage. It is the principal option available to those who are unemployed or who have faced a significant decrease in income.

If you are considering listing your home in a short sale, consult with a qualified Realtor® who has significant experience negotiating short sales. This agent’s contacts at the bank will go a long way towards resolving your situation as quickly and efficiently as possible.

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