How do I Know if a Short Sale is Right for Me?

 

A short sale is a transaction in which the homeowner sells a property for less than what is owed. The lenders voluntarily take a loss, and forgive the unpaid portion of the debt. Shortsales only take place when the value of the property is less than what is owed to the lender, and the owner is insolvent. A property worth less than what is owed is “over-mortgaged”.

 

A short sale is right when an insolvent homeowner in default owes more to a lender than what the property is worth. The homeowner has to be unable to ever for the complete loan balance. In these circumstances, the lender is in the unfortunate position of facing losses regardless. For the lender, foreclosure will not bring enough funds to payoff the debt. In addition, collecting losses from a foreclosed and insolvent homeowner is a difficult proposition. Because of this, the lender is better off forgiving the debt.

 

Based on the explanation above, a shortsale is right for the homeowner if:

 

 

Short sales are not an alternative for the homeowner if:

 

 

Under the circumstances just mentioned, most lenders will not allow a short sale. Lenders do not forgive debt from homeowners with present or future payment capacity. A good alternative for a homeowner in this position is a release of lien. In a release of lien, the property is sold for less than what is owed, but the homeowner still owes to the lender. To pay for that balance, the homeowner enters into a payment plan.

 

For the lender, foreclosures are hostile, lengthy and costly transactions. Shortsales are faster, more amiable, and have a lower cost. Because of this, lenders facing insolvent homeowners with over-mortgaged properties commonly accept short sales. If the homeowner can in any way pay, the lender will typically only allow a release of lien. If a short sale is not an option for the homeowner, most likely a release of lien is. A foreclosure is almost always a bad choice.