Mike Ayoub

Short Sale

A short sale is a sale of real estate in which the sale amount falls short of the balance owed on the property’s loan.  It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.
In a short sale, a seller facing the threat of foreclosure enters into an agreement with their mortgage lender to accept a price for the property that is generally less than the amount they actually owe on the original note (loan). The seller makes no profit on the sale but avoids many of the problems that would come from a foreclosure.However, this agreement may be revoked at any time as short sales are entirely voluntary transactions for both parties. The borrower may decide to remain in the property and attempt a refinance or modification of their mortgage loan, or may refuse to cooperate with the lender’s demand for financial documentation or a cash contribution, and thereby ensure foreclosure. Similarly, lenders can refuse to evaluate or approve a short sale offer, generally due to disapproval of either the buyer’s offer amount or high closing costs, which reduces the lender’s net proceeds. All short sale contracts should include a contingency clause specifying that the contract is contingent upon approval of the seller’s financial lender(s). Credit Score The negative credit impact of a short sale is less than that of a foreclosure on one’s credit score. A short sale will not appear as a foreclosure on your credit report, and therefore only the previous delinquency on your mortgage will appear. Many mortgage lenders report a mortgage that is paid through a short sale as being in a redemption status. Although the delinquency and change of status on your mortgage loan will certainly lower your credit rating, experience shows, the negative impact is less than the negative credit implications of an actual foreclosure. If you must choose between a short sale and allowing your home to go into foreclosure, from a credit perspective, a short sale is the wiser choice.