The ‘Short’ in Short Sales

Hi there! I just stumbled across in interesting article today and feel the need to share. The article relates to a very real risk for individuals that have been – or are considering – a short sale of their home. We’ll get to a brief summary of definitions and risks in just a moment but for those who wish to dive right into the CNN Money.com article, it can be viewed here: Mortgage lenders pursue homeowners even after foreclosure

Basically, a short sale is an arrangement – an agreement – between a homeowner and their lender. Let’s say a homeowner needs to sell their property and they have not been able to do so for an amount that would satisfy their mortgage balance on the property. That homeowner may be able to negotiate with the mortgage holder for the sale of the property at a price less than the mortgage. For most people in this situation this would appear to be the end of their problem: they sold their home and their mortgage has been satisfied. WRONG!

Please understand 'short sale' transactions are quite common these days and, when properly negotiated, can lend themselves very well in certain situations. There is nothing wrong with a properly negotiated short sale.

If you are thinking a ‘short sale’ type of arrangement is the right approach for your situation you absolutely must be talking to an attorney that deals with short sale transactions!

Here it is in a nutshell: There are two basic ‘commitments’ made by a homeowner when securing a mortgage. The first is the homeowner agreeing to offer the home as collateral for the loan. The second is a promise by the borrower to repay the mortgage. BOTH elements need to be addressed when negotiating a short sale. If a homeowner only addresses the first element and agrees with the mortgage holder to release the property as collateral so that it can be sold, there is still the second element that states the borrower agrees to repay the loan.

Some folks that have gone through the short sale process are getting a nasty surprise after the fact. Banks are contacting these people and informing them they still owe the difference in what the home ultimately sold for and the mortgage balance! Ouch.

Read the linked article from CNN Money.com for all the details. And, again, if you are considering a short sale be absolutely certain you do so with the assistance of a legal professional.

Until next time -

Jon Drews, Broker Associate with Century 21 Vista, Inc.

www.C21Vista.com