Unfortunately, in our current economic climate, more and more homeowners are finding themselves trapped in homes they can no longer afford and are falling behind in their mortgage payments. With market values plummeting, many mortgages are much higher than what the home is now worth.
Simply selling and getting out doesn’t appear to be a viable option when the sale won’t cover what is still owed on the mortgage. Not only that, but longer market times and higher inventories of homes for sale increase the difficulty of selling any home. As the homeowner falls behind on mortgage payments, foreclosure may seem unavoidable.
If the lender agrees to it, there is an alternative to foreclosure – a short sale. A short sale is when the net proceeds of the sale are less than what is owed to the lender and the lender forgives the remaining debt owed.
The advantage of the short sale is that it allows the borrower to get out from under an onerous mortgage with a lessened negative impact on their credit. Lenders are amenable to a short sale when it is apparent they will receive more from the sale than if they proceed with foreclosure and then subsequently sell the home.
Short sales can apply to both the original mortgage and also a second mortgage. In some cases the borrower is required to liquidate certain assets towards covering the shortfall.
Not all properties will qualify for short sale, and the lender must agree to the sales price. Therefore, it is very important to have a realtor experienced in negotiating short sales. There are specific forms that must be completed and procedures that must be followed to put a short sale in place.
Ideally the seller will receive a satisfaction of the mortgage, along with an agreement that the lender will not pursue any other claims against the borrower.
Anyone engaging in a short sale should be sure to seek professional legal and tax advice.