Short Sales
A short sale occurs when the proceeds of a real estate sale fall short of the balance owed on the communication with
a bank's Loss mitigation department. The home owner/debtor sells the mortgaged property for less than the
outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in
full satisfaction of the debt. In such instances, the lender
Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are
usually related to the current real estate market climate and the individual borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they
believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include
avoidance of having a foreclosure on their credit history and the partial control of the monetary deficiency.
Additionally, a short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing
more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally
on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement
is clearly indicated on the acceptance of offer.

Short sales are common in standard business transactions in recognition that creditors are not doing debtors a favor
but, rather, engaging in a business transaction when extending credit. When it makes no business sense or is
economically not feasible to retain an asset businesses default on their loans (called bonds). It is not uncommon for
business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of
these future defaults.

Negotiations
Lenders have a department (typically called "loss mitigation") that processes potential short sale transactions.
Typically, lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued
or recorded with the locality where the property is located.

Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined
criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's
approval. Multiple levels of approvals and conditions are very common with short sales. Junior liens - such as second
mortgages, HELOC lenders, and HOA (special assessment liens) - may need to approve the short sale. Frequent
objectors to short sales include tax lien holders (income, estate or corporate franchise tax - as opposed to real
property taxes, which have priority even when unrecorded) and mechanic's lien holders. It is possible for junior lien
holders to prevent the short sale. If the lender required mortgage insurance on the loan, the insurer will likely also be
party to negotiations as they may be asked to pay out a claim to offset the lender's loss in the short sale.

Credit reporting
A short sale does adversely affect a person's credit report, though the negative impact is typically less than a
foreclosure. Short sales are a type of settlement. Like all entries except for bankruptcy, short sales remain on a credit
report for seven years. Depending upon other credit information it is typically possible to obtain another mortgage 1-3
years after a short sale.

While it is frequent if not common for a lender to forgive the balance of the loan in question, it is unlikely that a lien
holder that is not a mortgagee will forgive any of their balance. Further, it is common for a lender to omit updating
mortgage balances to reflect a zero balance after a short sale. However, willfully misrepresenting information on a
credit report can constitute libel in some jurisdictions, and lenders may be sued in civil court for engaging in this
behavior.

see also
Mortgage Forgiveness Debt Releif Act of 2007
Your City Professional.

          Call Us: 818-340-5900
        info@cityprofinancial.com

CityPro Realty 2008-2010. All Rights Reserved