Short Sale Background

WHAT IS A SHORT SALE?

Background: Foreclosures and delinquency rates for mortgages are occurring in record numbers, many due to teaser-rate mortgages now adjusting upwards after the housing boom of two to four years ago. Higher taxes and insurance costs are making it increasingly difficult for borrowers to keep up with these payments. This is especially evident on the Emerald Coast of Florida. Now that prices have significantly decreased, these owners are in a predicament. Many have negative equity, i.e. owe the lender more on the mortgage than the property is worth. When this is the case, and the borrower needs to sell, one solution is a "short sale".

Definition: A “Short Sale” is when the lender agrees to a accept a payoff for less than the remaining mortgage balance, and possibly forgive the entire shortfall, as well as pay the seller’s closing costs including the Realtor fee. The loss is either completely written off by the lender, a payment arrangement is made with the borrower (promissory note), or a lump-sum for a potentially lesser amount is agreed to (cash contribution).

Why Would A Lender Accept a Short Sale? Banks don't want to own real estate. A foreclosure can cost a lender $30,000 to $60,000. They have to maintain the property, market the property, pay for utilities, then spend money on closing costs. They would rather do a Short Sale- where the groundwork has been done for them and generally costs them less than a foreclosure.

This site, Wendy Rulnick or Rulnick Realty, Inc. is not providing legal or tax advice. The information provided is for educational and informational purposes only. It is recommended that sellers considering a short sale should consult an independent legal and tax advisor for more information.

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