"Short Sale" of Real Estate

A short sale involves the mortgage lender (or lenders) agreeing to a homeowner to sell his home for a price less than enough to payoff the mortgage in full. The lender is agrees to satisfy its mortgage lien for an amount less than a full pay-off so as to allow the sale of the real estate.  As the net proceeds of the sales price is less than the full amount due on the mortgage lien(s), the mortgage holder(s) must agree to accept a "short" payoff in exchange for release of its mortgage lien.

Many homeowners facing foreclosure consider a "short sale", but have a difficult time understanding all of its implications. Some property owners that attempt to achieve a short sale are not successful in their efforts. Many seem to indicate frustration in the attempt to communicate with the mortgage lender(s) and/or actually complete a short sale. In addition, many lenders may be under contractual or regulatory restrictions that may not permit them to agree to a short sale.

Apparently the most difficult item in the short sale process is communicating with the lender and any second mortgage holder, such as the holder of a "home equity loan." In addition to the agreement of the first mortgage holder, the agreement of any junior mortgage holders must also be obtained. Outstanding judgments or tax liens may also be an issue as the buyer would need to receive clear title.

The process of obtaining a short sale usually takes several weeks to pursue and one needs to furnish substantial documentation, including personal financial information such as paycheck stubs, bank statements, 401(k) statements, and tax returns. One may also need to furnish information about a hardship.

Release from Liability

One of the most important issues in the short sale is whether the homeowner is actually released from liability for the "short" or unpaid amount. If the mortgage company and/or the second mortgage company do not release a person from liability for the unpaid portion, the benefit of a short sale to a homeowner may be questioned.