A short sale is a less than full payoff arrangement that a homeowner can seek to obtain upon the sale of his or her residence with their lender when the fair market value of their residence is less than the amount that is owed. These arrangements are not a matter of law, they need to be negotiated. The information below below is fairly representative of what is occurring today in this market with most institutional lenders.
Basic prerequisites are: homeowner needs to be in financial straits, behind in his/her payments (unfortunately lenders do not deal routinely with borrowers who are current with their payments) and there is a qualified buyer for their home at its fair market value. If these conditions are met one can seek to have a lender take the net proceeds from that sale and forgive the balance owing.
No money will go to the seller from the sale. Some deals may even require that the seller/borrower pay additional amounts to a lender to close a deal. Why go through all of this? Mainly because it is reported in a preferable way on your credit profile to having your home foreclosed upon and that should make it easier for you to then finance a new home or investment property.
Lenders are willing to work with borrowers in these situations because it makes economic sense (cents?) to them. They have already foreclosed on, own and are burdened with far too many properties at this time. Taking on more properties is not presently their best option – and perhaps for some time to come as well. Fannie Mae (FNMA – Federal National Mortgage Association, Ginnie Mae (GNMA–Government National Mortgage Association) and Freddie Mac (FHLMC –Federal Home Loan Mortgage Corporation) are the major sources of funds that underlie US Home financing. These entities have been playing hardball until recently regarding short sales. Now, they (along with the blessings of the government – HUD/FHA) are encouraging banks to enter into Short Sale arrangements rather than continue to foreclose and have more properties in their portfolios than they already have. This is good news for homeowners who are in need of this program.
We have a few decades of experience in this area, I am, in addition to being CA licensed Attorney, a CA licensed Real Estate Broker. Persons in financial straits discussing short sales along with other options relating to their financial future (such as loan modifications, estate planning bankruptcy options and their new income producing ideas) routinely find it worthwhile to buy a one hour consultation with us to doicuss all of the above as it relates to their present financial scene.
Do let us know if we can be of help to or your friends.
Best,
Ron