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Hi Robert,
The answers already presented offer the "short" (pun intended) version of a correct response to your question. I shall now try to offer a more complete response....
What Is A Short Sale?
A Short Sale which is also referred to as a Short Payoff, is a remedy that lenders sometimes make available to their borrowers as a way of preventing a property from having to be foreclosed upon. Then lender, rather than risk losing an even greater amount of their investment, agrees to accept, as full payment, the entire balance of the funds received from the sale of the property, less the expenses of the sale.
The "short" part is a reference to the shorting of the payoff amount, (For example:I owe you $200, but I can only pay you back $100 and you decide to accept that and call it square...) refers to the dollar amount only, and not in any way to the amount of time it takes to complete the transaction.
These transactions only occur when the current market value of the item loaned upon is now less than the amount loaned against it. In a descending market, that piece of the puzzle may be found almost everywhere. But that is only one piece of the puzzle and not the whole picture by any stretch.
The other components that need to be present in order to make a Short Sale not only possible, but also necessary are: A demonstrable hardship on the part of the borrower which now prevents them from keeping their repayment commitment (Job Loss, Catastrophic Illness in the borrower or someone they support, Job Transfer, Death, Divorce...); A lack of equity in the property itself which would prevent refinancing of the current loan; The borrower having proven that they have no other way of attempting to cure the debt.
When Should It Be Used?
Simply put, only in times of financial life or death or when you have no other options available to solve your financial problem.
This is not a quick, easy or painless solution. And it is ABSOLUTELY NOT something you should be doing if you don't have to do it.
I almost think an even better and more important question would be: "When Shouldn't You Use A Short Sale?"
You shouldn't use a Short Sale if you have the money available to pay off the debt. Remember, the lender will want you to provide a very detailed picture of your finances (and those of anyone else named on the loan or part of your household) including your tax returns for three years, your paycheck stubs, your bank statements (current and past), your other debts and obligations, your savings accounts, stocks, bonds, cd's or retirement accounts and any other assets you have. The will ask for, and expect you to pay off, your debt to them as agreed when you accepted the loan, and to use whatever means you have to do just that.
You shouldn't use a Short Sale if the only thing that has changed is the current market value of the home. If you are still able to pay your mortgage, pay it.
You shouldn't use a Short Sale if you may have committed fraud when you got your loan. If you used a "Stated Income" loan to purchase your property and the income you said you earned to qualify for the loan was not accurate at the time you took out the loan (or refinanced) you may have committed fraud and the repercussions of that act could be a whole lot greater than just damage to your credit and a loss of the home.
Bottom line, if you are wondering about whether a Short Sale is a viable solution for you, the best advice I can give you is to speak privately with a professional Realtor, Lawyer or Accountant who can advise you on what your best options are for your specific situation.
Thank you for stopping by and asking these questions. I hope I have helped to answer them. If you need any additional information or have any other questions, please do not hesitate to ask.
Take care and have a wonderful day!
Tisza Major-Posner, Realtor DRE#01784679, IVPG Realty (909) 837-8922 Tisza(at)HomesByTisza.com
Sun Jul 12 2009, 13:18
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