How Do You Handle Short Sale

If you are behind on your mortgage payments, you may be thinking of ways to stop foreclosure or avoid foreclosure and you may have mentioned this to different people. Someone says that he will buy your house, but the amount he is willing to pay for your house will not pay off your mortgage. Someone says do a "short sale". The question then becomes: "How do you handle a short sale?"

In case that your are not familiar with the term, a short sale is where you sell your house for an amount less than the amount that you owe on your mortgage and your mortgage lender accepts the lower amount as satisfaction of your mortgage. For example, you owe your house lender $100,000, but someone is willing to pay only $90,000 to buy your house. Your lender may accept the $90,000 and satisfy your mortgage.

Why would a lender accept less that it is owed? Foreclosure cost lenders money. They have to pay legal costs, house maintenance costs while trying to sell you house, and costs for selling your home when a buyer is found. In many cases, it is cheaper to lose money up front when there is a buyer than it is to go through the foreclosure process and hope for a buyer. Short sales to lenders are sort of like the old saying "a bird in the hand is worth two in the bush".

So, how do you handle a short sale? First, contact your mortgage lender to determine if your lender will accept a short sale. If your lender will accept a short sale, it will tell you what information and documents it will require. The required information and documents are designed to make sure that you will not receive any money form the sale of your house. The lender figures that, since it will lose money, you should not make any money from the sale.

After you give your lender the required information and documents, you lender will then either accept or deny the short sale. If your house lender accepts the short sale, you then go through the buy/sale process the same as a regular real estate purchase/sale.

Occasionally, a lender will ask borrowers to agree to pay either all or a portion of the difference between the short sale price and the amount owed. In the example above, a lender may ask you to pay all or part of the $10,000 difference ($100,000 less $90,000). Lenders that ask you to pay the difference will not require that you pay the difference amount up front. Instead, they will ask you to sign a Promissory Note promising to pay in the future.

It is a good idea to have a lawyer review any documents that your lender requires as part of a short sale so that you understand fully what you are doing. Also, beware that if you sign a Promissory Note, your lender could sue you for the money in the future.

This is general information only and not legal advice. If you need specific information or have any questions of any nature whatsoever, talk with a lawyer licensed in your state.

Stop! Don't blindly chase any option to stop foreclosure. See stop foreclosure options to learn what options you have in your situation. Remember, what works in one person's situation, may or may not work in your situation to stop, avoid, and prevent foreclosure.

For more general information, see Stop Foreclosure - Five Options You Need To Know. For more detailed information see short sale.

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