Short Sales

For those unsure of the meaning, the Nolo legal dictionary provides this definition of a short sale: "A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes."

Despite these obvious benefits the following article makes it clear that the whole process must be executed carefully and patiently with buyer and seller working together, if the homeowner is to avoid the free fall of foreclosure.

"Short sales seem like a win-win for everyone involved, but as real estate professionals know, short sales can be hard to pull off. It can take months for the mortgage company to respond to an offer, and the lender or lenders often balk at the price.

Why doesn’t the process go more smoothly when it seems like a much better deal for everyone than foreclosure?

• Paperwork. Gathering all the information needed to evaluate a short-sale offer can take time, says Patrick Carey, an executive vice president with Wells Fargo. The loan servicer must first determine whether the homeowner really can't continue meeting the loan payments, then get an appraisal or broker's opinion of the home's value.
• Many steps, approvals. Mortgage servicers also try to ensure that the proposed sale is an 'arm's length' transaction between two parties rather than something like a sale to a relative on sweet terms. They must also determine whether the buyer has sufficient funds or the ability to get a loan. If all those hurdles are cleared, the servicer may still need to get approval from the investor that owns the loan and provide an analysis showing that the investor will be better off with a short sale than with another solution.
• Complications often arise. There are additional complications if the borrower has a mortgage and a home-equity loan. In that case, both parties must approve the deal – which is a challenge when the sales price may not even be enough to cover the mortgage balance.
• Minimize delays. Carey suggests that home owners contemplating a short sale immediately call the loan servicer to get the approval process started, rather than wait for an offer."

For the full Wall Street Journal article from Realtor magazine: http://www.realtor.org/RMODaily.nsf/pages/News2008041802?OpenDocument