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What is a short sale?

September 19, 2008

Short sale is a term often heard lately as people struggle to pay their mortgages and avoid foreclosure.

But, what is a short sale? And what implications can it have in the future?

A short sale essentially means your lender agrees to allow you to sell your home for less than you owe on it. Banks allow this as an alternative to a foreclosure because it means they won’t have a property to maintain and resell.

A short sale can have a negative impact on the seller’s credit score. It also means that no profit will be gained from the sale to give the seller money to put towards the purchase of another home or rent for a property.

A bank may agree to a short sale, but still hold the borrower responsible for part of the remainder of the loan or the entire remainder of the loan.

The New York Times wrote about this. The story featured a couple who had to move for work-related reasons and found that the value of their home had dropped to below what was owed. The lender agreed to a short sale, but required the couple to pay back $40,000 of the loss.

According to the story, the couple’s lender sent them an e-mail telling them the lender would work with them when they were ready to “participate in the loss.”

Increasingly banks aren’t willing to bear full brunt of a short sale.

What can you do if you’re facing mortgage payments you can’t handle?

Contact a non-profit credit counseling agency, like Advantage CCS in

Pennsylvania, which offers what is known as loss mitigation counseling. A housing counselor can help you weigh your options and work with you and your lender to find a solution. Advantage offers housing counseling at no cost.

You don’t have to struggle through difficulties with budgeting and paying your mortgage alone. Get help as soon as you realize you are going to have a problem.

Written by admin · Filed Under Housing 

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