What is a short sale?
A short sale occurs when a lending institution or bank accepts less than what is owed on the mortgage as a "short" payoff.
Due to the decline in real estate values, more and more homeowners find themselves owing more than what their properties are worth. Many are in situations where they can no longer afford to pay the mortgage or are being forced to relocate due to work-related circumstances.
For these reasons, "short sales" are becoming more popular with lenders and consumers as an alternative to the costly and time-consuming foreclosure process.
Why would a homeowner do a short sale?
The primary reason is to avoid the long lasting and damaging effects that being foreclosed on will have on your credit.
In some states, like Florida, the lender has the right to sue the homeowner for the deficiency balance, which in many cases forces the homeowner into bankruptcy.
When a homeowner opts to do a short sale instead of walking away from their obligation, they are "in essence" helping the lender recover as much of the lender's money as possible by selling the property for current market value. In return, the lender is less likely to come after the homeowner for the deficiency and in many cases we are able to convince the lender to forgive the remaining debt.
A seller will be able to purchase a new home much sooner after a short sale versus a foreclosure.
Sellers can generally remain in the property up until the closing date, and in most cases you will pay literally no closing costs if your lender approves the short sale, and in some cases we may even be able to get a financial incentive to help with moving costs.
Why would my Lender accept a Short Sale?
Lenders and their investors do not like excess inventory on their books, therefore if they see an opportunity where they can dispose of the property without the huge loss incurred after a foreclosure, most of the time they will take it.
The loss for your lender after going through the foreclosure process is substantially higher than what it would be if the lender accepts a short sale.
Lenders also have increasing pressure on a federal level to get these distressed properties out of their portfolio since it affects their ability to make new loans or sell existing loans on the secondary market.
Below you will find a list of hardships that are common and frequently accepted by mortgage lenders.
- Family illness or injury
- Illness or injury in the extended family, particularly if it forces relocation
- Job relocation when the property is equity deficient
- Job loss or significant income loss
- Divorce or split of domestic partners
- Adjustment in mortgage payment or unforeseen increase in living expenses
Unfortunately lenders do not approve all Short Sales and this is why it is important to hire an attorney with extensive experience getting Short Sales approved. The Law Office of David J. Heekin has worked with thousands of clients in the Jacksonville area to help improve their situation. If you would like additional information, please contact us at 904.998.9733.