| Shortsale refers to any type of real estate being | | | | grace to borrowers who do not have the financial |
| sold for less than the borrower owes on their | | | | means to cure mortgage arrearages and continue |
| mortgage note. Lenders authorize selling the | | | | making monthly payments. |
| property short of what is owed based on several | | | | Mortgage lenders require borrowers to submit a |
| factors. One of the most prevalent factors is if | | | | short sale packet which includes financial records, |
| short selling will be less costly than allowing the | | | | list of income and expenses, short sale hardship |
| property to fall into foreclosure. | | | | letter, and various other documents. In most |
| The majority of shortsale homes are sold for 7- | | | | cases, banks require borrowers to have a buyer |
| to 10-percent below market value. Many | | | | lined up before granting short sale approval. Some |
| borrowers hold a second mortgage and may owe | | | | lenders will grant borrowers' time to list their |
| upwards of $100,000 more than the appraised | | | | property through a realtor. |
| property value. In this case, it can be less costly | | | | Two types of shortsale transactions exist. The |
| for banks to foreclose on the property and hold it | | | | first is known as Payment in Full without Pursuit |
| until housing prices go up. | | | | of Deficiency Judgment. This means the lender will |
| Mortgage financier, Freddie Mac, states the | | | | accept the sale price as payment in full and |
| average cost of foreclosure is between $60,000 | | | | release borrowers from their loan. Payment in Full |
| and $80,000. The foreclosure process typically | | | | short sales will affect the borrower's credit. |
| takes eighteen months to complete. It usually | | | | However, if the debtor is able to get back on |
| takes between six and twelve months before | | | | track financially they can apply for another |
| banks seize the property and place it for sale | | | | mortgage loan within a few years. |
| through public auction. Property is returned to the | | | | The second type of shortsale is the Deficiency |
| bank if no one places a bid. The bank becomes | | | | Judgment, which means banks hold the borrower |
| responsible for maintaining the property until it | | | | responsible for the difference between the sale |
| sells. | | | | price and loan amount. This can amount to |
| On the other hand, the short sale process usually | | | | thousands of dollars, making it nearly impossible |
| takes four to six months to complete. The | | | | for the borrower to ever repay the debt. |
| property is sold to another buyer. Once the deal | | | | Deficiency judgments are reflected on borrowers' |
| is complete, the borrower is released from the | | | | credit history until paid in full. For many people, this |
| loan and the bank transfers the property to the | | | | can be a lifetime and will rob them of ever being |
| new owner. Although the bank incurs a loss on | | | | able to obtain affordable credit. |
| their investment, they save time and money in | | | | Short sales remain on credit reports for up to |
| the long run. | | | | seven years, while foreclosure sticks around for |
| Banks are limited to the number of real estate | | | | ten years. Deficiency judgments might never go |
| owned (REO) properties they can hold. With the | | | | away. |
| ever-growing number of foreclosure homes many | | | | It is important to weigh the pros and cons of |
| banks are rapidly approaching their quota. Most | | | | short sale transactions. Take time to become |
| banks will short sell properties requiring substantial | | | | educated about the process; what is involved; |
| repairs and retain properties that are | | | | what to expect; and the long-term effects. When |
| well-maintained and located in popular areas. | | | | properly structured, short sales can be a win-win |
| The shortsale process is tedious, complicated and | | | | solution for all parties involved. |
| time-consuming. However, it can be a saving | | | | |