Short Sale in Sarasota Florida - Cynthia Riddell, Esq.

Short Sale

What is a Short Sale?

A short sale is the process by which a homeowner sells his/her home for less money than he/she actually owes on the mortgage or mortgages. The term short sale refers to the short payoff that the lender agrees to accept for release of their lien on the property and for a full settlement of debt. The seller/borrower does not receive any funds from closing and closing costs such as real estate commissions, document stamps, transfer taxes and title insurance premiums are netted from the purchase price. The lender must approve the purchase price as well as the net figure they are to receive upon closing.

How does the Lender Approve the Short Sale?

The homeowner/borrower must submit the short sale offer as well as documentation of the homeowner/borrower’s hardship to the mortgage lender (or bank). The homeowner/borrower must also submit financial information to the lender to begin the process to approve the short sale. Once the homeowner/borrower has submitted the entire short sale package the lender will determine whether it will actually take a loss (or write-off) on the mortgage because the value of the home has fallen below the mortgage balance AND the homeowner is in a poor financial condition that will not allow him or her to continue to pay on time. If the bank approves the discount on the mortgage, the home can be sold for a lower price without the seller having to come up with cash to cover the shortfall, and the mortgage is satisfied and the foreclosure process stops.

What type of situation is the short sale best for?

Most short sales are done on properties in foreclosure. This means the homeowner is at least 3 payments behind and the foreclosure suit has been filed by one of the mortgage lenders. Recently, more mortgages that are simply behind or "in default" are considered short sale candidates without actually being in foreclosure. Also, the homeowner typically has negative equity or no equity in the home. In other words, the total balance owed on the mortgages is equal or greater than the price at which the house can be sold.

How does a homeowner benefit from a short sale?

First it relieves the stress of being in foreclosure. A short sale also gives homeowners/borrowers a mitigation tool by allowing a homeowner to get rid of their big mortgage payment and move on with their lives. A short sale approval allows you to stop the foreclosure and get a fresh start.

Why would a bank or mortgage lender want to do a short sale?

A common saying is that banks are in the business of lending money and do not want to own real estate. This is slightly misleading but is essentially true. When a bank takes a property back via foreclosure, it is a long and expensive process and often results in holding the property in their inventory as a non-performing asset. Banks have a limit to the amount of non-performing assets they want to hold.

Will a short sale "save my credit"?

The short answer is yes and no. A short sale is often only available once the homeowner/borrower has defaulted on a mortgage payment. This default is reported to credit bureaus thus there is already damage to your credit. However, it will get much worse if you allow the foreclosure to continue and do not try to short sale the property. If you can complete the short sale BEFORE the foreclosure takes place, then you can prevent that further damage to your credit.