A “Short Sale” (Also referred to as: “Negotiated Settlement”, “Short Pay” or “Pre-Foreclosure”) occurs when a Lender agrees to accept less than the amount owed on the original note or total payoff, as an alternative to foreclosure. If the property is worth less than the amount owed on the loan, even if the Lender forecloses and takes back the property, they know they are going to take a loss. We can often convince a Lender that they will “do better” if they take less than what is owed now rather than taking the property back by foreclosure and trying to re-sell it.
HOW LONG WILL IT TAKE?
The Short Sale negotiation process can be rather lengthy. It may take several weeks to several months for an approval. Many Lenders will have several layers of bureaucracy, insurers, and investors that we will have to maneuver through in order to get a Short Sale approved. So, it is important to be patient during this long process.
MY HOUSE IS GOING TO FORECLOSURE, WILL I HAVE ENOUGH TIME?
Maybe-maybe not. Just starting a Short Sale will NOT automatically stop a foreclosure. However, many times we can convince a Lender to stop the foreclosure to let us attempt to negotiate the Short Sale. While there are no guarantees, it is worth the attempt.
CAN I STAY IN THE HOUSE?
The key word in a “Short Sale” is sale. The purpose of a Short Sale is to get the property sold. This is not a program that can stop a foreclosure and allow you to keep the house indefinitely. Moreover, it will be easier to sell the house if it is vacant. Therefore, you should most certainly begin making plans to vacate the property.
HOW DO I KNOW THIS WILL WORK?
Again, there are no guarantees. We cannot, have not, and will not make promises to you that this will work. Once you miss a payment, the Lender is in charge and can proceed to foreclosure if they want to. However, we know they do not want to and we are very good at presenting alternatives to the Lender that are often very attractive, as opposed to moving forward with a foreclosure. We are very proficient at Short Sale negotiations, but NO GUARANTEES are being made as to whether or not the Lender will accept the Short Sale.
WHAT HAPPENS IF THIS DOESN’T WORK?
Your house will likely go to foreclosure. A Short Sale can often prevent foreclosure, but not always.
WHAT IS A “RELEASE”?
A Lender may offer a “release”. Which is a security instrument against the property in exchange for less than the total amount of the note. A release will allow the property to be sold without paying off the obligations of the note. However, the note is not satisfied. Advantages: This will allow the property to be sold and thus avoid foreclosure. Disadvantages: The remaining debt on the property (sometimes called a “deficiency”) still exists. In other words, you are still liable for the note and still owe the money to the Lender. Reality: The lender may choose not to pursue the deficiency unless you have other significant assets; however, foreclosure will often result in the same deficiency being owed to the Lender.
WHAT IS A SATISFACTION?
A Lender may agree to accept less than they are owed as complete and total satisfaction of the note and release its lien against the property. Advantages: Your note and obligation to the Lender are satisfied for less than you owed. When the property is sold, the debt is paid off completely. Disadvantages: You may have some tax consequences that you should discuss with your tax advisor due to the fact the Lender is making money you owe them disappear. Sometimes our negotiations are successful in obtaining a satisfaction. Although, there are other times where the lender will only negotiate to a release.
HOW CAN YOU GET STARTED?
The Lender will require a review of a financial package that usually includes: (2) month’s banks statements, (2) months paycheck stubs, (2) year’s tax return, Financial Worksheet and other information. The leading cause of delay and even denial of our offer to the Lender is caused by the Seller failing to cooperate and/or deliver the necessary items in a timely fashion. To help us succeed, please find as much of this information as you can right now. These things will help us work faster and increase your odds of a successful Short Sale.
Learn more about the Short Sale Process.