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Short Sale 101, Basics Of A Short Sale, Short Sales Can Be Fun!, Short Sale In Your Future?

By Guest

If the value of your home has declined below the amount you owe on ityou are said to be “upside down” or “underwater”! Both terms conjure up negative thoughts, and, rightly so. With all the due diligence you put into the purchase, and all the business acumen, actuarial smarts, underwriting/appraising and brokerage experience put into the lender’s decision to accept the home as collateralit’s a strange thing indeed that the deal went south. But, it did go south. In fact nearly 20 million homeowners in the US are facing this scenario right now. It’s psychologically bad for all of them. It’s financially bad for those who must sell because of a job loss, reduction in pay, divorce, death or other reason. For them, it’s a financial disaster.

A short sale can be an excellent workout solution for homeowners who must sell and owe more on their homes than they are worth. Of course, the lender has to approve such a sale because they have accepted the home as collateral for the debt. How it works, what becomes of the “forgiven” amount, what you tax liabilities are and how to be protected from future deficiency suits are the right questions to ask. In this article I will address the first one

This is How a Short Sale Works

The short sale is conducted in exactly the same manner as a traditional sale, with one important additional step. When a suitable buyer is found your “application for a short payoff” is submitted, along with the offer, to the lender. The application includes an explanation of the hardship that led you to this situation.

The application also includes a HUD-1Worksheet of the expenses involved in the execution of this purchase contract, and showing the net proceeds that the lender will receive. One of the items on the HUD-1 is the payoff amount of any “junior” lien holders. Typically, these lien holders settle for a small fraction of the amount owed as their claim on the collateral is subordinate to the 1st, or senior mortgage. That, by the way, is why they always charge higher rates – they are more exposed to loss.

Your lender then reviews the application and gets their assessment of the value of the home and the appropriateness of the offer. They do this by hiring a local Realtor to provide a Broker Price Opinion (BPO) or by using the Automated Valuation Model (AVM). The AVM is a computerized estimate of net proceeds if the home goes to foreclosure and the lender must sell it themselves. Usually this evaluation takes at least 30 days.

People seem to be getting more familiar and more comfortable with short sales. However, some misconceptions still exist. These are the most common.

Myth #1 – My Lender Will Foreclose Rather than Bother with a Short Sale

The foreclosure process is lengthy and expensive. The short sale process is short and fast. So, it’s the lesser of two evils. If all things are equal, the bank gets their money months faster through a short sale.

Myth 2 – You have to be in default to get approved for a short sale

Once the case, it is no longer. Lenders are looking for verifiable hardship and monthly cash flow shortfall. Beyond that the deal hinges on determining the current market price and finding a qualified buyer.

Myth 3 Short Sales take so long that the hme is often lost in foreclosure before approved

This is a dangerous misconception. Many homeowners fail to pursue short sales believing that it’s too late. Actually, short sales are effective workout solutions right up to trustee sale (sheriff’s sale).

The foreclosing party-in most cases a lender-can delay foreclosure up to the final day of the process. In these trying times, many lenders will delay the foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will delay foreclosure with a legitimate short sale purchase contract.

Myth #4 – Listing My Home as a Short Sale is an Embarrassment

As many as 50% of homes with mortgages in the U.S. will be upside-down by 2011. Short sales are becoming common even in the high-end neighborhood where “responsible” people live! Get over it.

Myth #5 – Buyers are Not Interested in Short Sales

Smart agents and their buyer-clients evaluate deals based on the facts. The fact is that short sales are a significant part of the housing inventory and often the best deals are short sales. So, this is a misconception.

Short sales are here to stay for many years. Millions of homeowners will use short sales as a way to workout their portion of the housing crisis. As a workout solution they provide significant advantages over many other options.

Want to find out more about actually getting short sales done? Visit Rockwood’s site at Home Loan Modification

categories: loan modification,home loan modification,mortgage modification,Real Estate,mortgage,finance,debt,business,personal finance,housing,mortgages,lending,economy

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Article Citation
MLA Style Citation:
Guest, Guest "Short Sale 101, Basics Of A Short Sale, Short Sales Can Be Fun!, Short Sale In Your Future?." Short Sale 101, Basics Of A Short Sale, Short Sales Can Be Fun!, Short Sale In Your Future?. 12 Jun. 2010. 9 Sep 2014 <>.

APA Style Citation:
Guest, G (2010, June 12). Short Sale 101, Basics Of A Short Sale, Short Sales Can Be Fun!, Short Sale In Your Future?. Retrieved September 9, 2014, from

Chicago Style Citation:
Guest, Guest "Short Sale 101, Basics Of A Short Sale, Short Sales Can Be Fun!, Short Sale In Your Future?"

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