What is a Short Sale?

Today's housing market crash is causing lenders to find more ways for homeowners and lenders to avoid the foreclosure process. Banks are going to the government for bailouts and more are closing their doors for business. Mortgage lenders made exotic loans with teaser rates allowing home buyers to choose their mortgage payments and placing other buyers in mortgages with low introductory rates that slammed buyers’ income a few years later.

Most homeowners claimed they didn't understand their mortgage. In most cases adjustable rate mortgages gave first time home buyers the opportunity to purchase a home for a lower monthly payment for usually two to three year, then after that time their house payments will increase when their mortgage interest rate adjusts. Those types of loans for buyers will shaky credit but they were able to buy a home and not face the high interest immediately that they would have otherwise had to deal with.

The purpose of the adjustment rate mortgage or teaser loans was to give a bad credit buyer a home now with the intent of the buyer paying their bills on time for the next two to three years so they can refinance out of the ticking time bombs. Those shaky buyers quickly forgot the purpose of the loan and went out to get more credit. The more credit a person gets makes it harder to pay obligations, then they started falling behind on bills.

Now the country is in a foreclosure crisis that caused the government to jump in and bail out the lenders and home buyers. Lenders also have their way of reducing the costly process of foreclosure and one way in particular is called a short sale.

A short sale is when a homeowner’s mortgage lender agrees to accept less than the mortgage balance owed to make the house more marketable when a homeowner can't afford their house and wants to sell. A lot of homeowners that have teaser loans find out quickly that they can't afford their home that had once had comfortable payments sharply increased. The best way for the homeowner to get from under their mortgage obligation is a short sale which can help them stop foreclosure.

Lenders agree to short sales because it can save thousands of dollars in foreclosure cost, attorney fees and selling fees once they take the house back. Plus a short sale helps a lender recoup their money faster than repossessing a home that may take months and sometimes over a year to sell through a real estate agent.

Homeowners benefit from a short sale as well because they can walk away from a house they can't afford that would otherwise go to foreclosure and ruin their credit for five years or more. Homeowners that short sale their house can usually qualify to purchase another home in two to three years.

Short sales help all parties involved by getting lenders their cash now instead of tying up their money for a half of year to a year and a half or longer. Lenders get to cut their losses so they can go back to loaning money to turn their non-performing asset into a performing asset. Homeowners benefit because they get to avoid the foreclosure process and walk away from a home that they can’t afford.

The homeowner also can plan to make arrangements for a new place to live and not have to worry about being kicked out of their home onto the streets. Owners can also tell their family and friends that they legitimately sold their home and didn’t lose it to foreclosure.

Short Sale FAQ's
Find out answers to frequent questions about short sales.