What is a Short Sale?

March 10, 2009 by  
Filed under Short Sale How To

dictionary-2-70x70The short answer is it is a sale where you do not generate enough money from the sale of the property to fully pay all the loans and liens, and the creditors accept less than full payment for these debts. In other words, the payment is “short”.

In your grandparent’s day, if you sold a property and did not have enough money to pay off all the loans, you took the rest of the money out of your pocket and brought it to the closing of the sale.

I have heard that the first short sale was done by Fannie Mae in 1988. I did my first one in 1992. In the early ’90s, it was unbelieveable for a banker to have someone call and offer to pay them less than what was owed. You could hear some real ugly words out of a banker’s mouth back then. Failing to fulfill the promise that you will pay back what you borrowed was obscene to them. When you think about it, the banker has a point, because the borrower is not living up to the promise to pay back the loan.

This is a process that may not be perfect, but it is frequently the most practical solution to the current financial crisis. If the property has gone down in value so you cannot get enough money out of the sale, a short sale may be the best choice. If the borrower has had a recent financial disaster, the short sale may get more money from the bank than any other choice, because you cannot get money out of a broke borrower.

A short sale works where the property qualifies and the borrower qualifies. If there is enough money from the sale, the bank gets fully paid. If the borrower has the money to bring to the closing, the bank probably will not approve a short sale. If the property has insufficient value and the borrower has insufficient funds, consider a short sale.

There is a wide range of training that the Realtor must have to give the right advice. There are at least three sides to the negotiations, instead of two, because you have to get the sale agreed by the buyer and seller then approved by the lender. There are title issues, so you have to understand what the liens are and how the priority of the liens affects how much each lender gets paid. There are income tax issues. There are issues concerning the foreclosure process. You need to explain the effects on credit reports. You need an understanding of the law concerning debt collection to try to get a full release from the debt. You have to be aware of interpretations restricting your ability to negotiate with a bank if the foreclosure process has started, as it may be considered the unauthorized practice of law. You have to be able to close an “as is” sale, so the second round of negotiating after the inspection is different. A short sale even takes special talent for the closing attorney or escrow officer.

Where are you going to learn all this? Right here at www.ShortSalesR.us

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