It’s not often that you listen to an advisor telling you to sell your property, or anything else at a loss, even if your financial situation has reached the point where nothing seems salvageable at first glance. Specifically, when it comes to property, a short sale is the financial agreement where the bank that could have financed the purchase of your property; who is presumably in default or about to default on the mortgage, is willing to let you sell it for less than the full value defined by the terms of the bank loan. Basically, if you have $200,000 left on the loan you took out from the bank, but are in dire financial straits or don’t want to pay the rest for any other reason, then a short sale is when the bank allows you to sell the property for maybe $50,000 or some figure that is generally much less than the amount remaining on the loan.
A short sale, as you might have guessed, is usually a route of last resort and should be taken before foreclosure or bankruptcy filing. However, the option may be attractive (relatively, of course) to you if you have serious financial problems and require a lender-vetted approval process before you’re eligible. Demonstrable hardship is the key to getting permission for this method of sale, after which the lending company or a subsidiary will conduct a financial audit because, believe it or not, there are some definite benefits to doing a quick sale rather than just default on a loan in the normal way, which can cause you serious financial and credit problems. A short sale can be attractive because it saves your credit score from all of that, allowing you to declare loan eligibility soon after the fact.
There are only a couple of different types of short sales.
Payment in full without seeking a deficiency judgment. This requires a release from fiscal responsibility, so you are no longer responsible for paying the balance.
Deficiency sentence. You have to pay eventually in this case.
The key to getting through a short sale process with minimal damage is the negotiator. She will be responsible, assuming the lender approves the short sale, for obtaining fair market value in light of the significantly lower price at which the property is being purchased. She will get you the proper legal papers properly and fully releasing you from any legal responsibility for the loan amount, so that it is not something that jumps out of the fine print years later and bites you in the back. In cases where a monetary contribution is required from her to finalize the deal, she will, of course, minimize this amount or obtain a good secondary lender to help shoulder this burden, however small, relative to the alternative.
Lastly, make sure you stay on top of your finances so you can anticipate trouble months down the line, because timing is everything when it comes to instituting a quick sale before your property goes into foreclosure and it’s too late. You would need to have found a great real estate agent before then, and this could take days, weeks or months, depending on your real estate company contacts. Also remember that the lender’s permission is essential even to obtain a short sale.
