A “Short Sale” or “negotiated settlement” or
“short pay” occurs when a Lender agrees to accept less than the
amount owed to payoff a loan as an alternative to foreclosure.
If the property is worth less than the amount owed on the loan,
then even if the Lender forecloses and takes back the property,
they know they are going to take a loss. We can often convince
a Lender that they will “do better” if they take less than what
is owed now rather than taking the property back by foreclosure
and trying to sell it later.
The Short Sale negotiation process is a lengthy
one. It may take several weeks or more likely several months to
get an approval. Many Lenders have several layers of
bureaucracy, insurers, and investors that we will have to
maneuver through in order to get the Short Sale approved. So it
is important to be patient during this long process.
But my house is going
to foreclosure, will I have enough time?
Maybe, maybe not. Just starting a Short Sale
does not automatically stop a foreclosure. However, many times
we can convince a Lender to stop the foreclosure to let us
attempt to negotiate the Short Sale. So, while there are no
guarantees, it is in your best interest to try the Short Sale.
The key word in “Short Sale” is sale. The
purpose of a Short Sale is to get the property sold. This is
not a program that can stop foreclosure and allow you to keep
the house indefinitely. It will be easier to sell the house if
it is vacant, so you should make plans to move as soon as
You don’t. We cannot, have not, and will not
make any promises to you that the Lender will accept a Short
Sale. Once you missed a payment, the Lender is in charge and
can proceed to foreclosure if they want to. But we know they do
not want to and we are very good at presenting alternatives to
the Lender that they often prefer to accept rather than
foreclose. We are very good at what we do, but NO PROMISES
or GUARANTEES are being made as to whether or not the
Lender will accept a Short Sale – they may or may not.
NO. A universal requirement of Lenders granting
a Short Sale is that the borrower will not get any proceeds from
the sale of the property. The Lender is going to take a loss on
your loan – they are not going to let you get any money.
Your house will likely go to foreclosure. A
Short Sale is something we try after you have exhausted your
What is the
difference between a “RELEASE” and a SATISFACTION?<TOP>
A Release is where the Lender may offer to
“release” its security interest against the property in exchange
for less than the amount of the note. However, the remaining
debt on the property is still not satisfied. A
Satisfaction is where the Lender agrees to accept less than you
owe on the balance of your mortgage as a complete and final
“satisfaction” of the debt and the mortgage lien on your
Advantages of a Satisfaction:
Your note obligation and mortgage encumbering the property are
both satisfied for less than what you owe. When your property
is sold, the debt is paid off completely.
Disadvantages of a Release:
Since the remaining debt on the property (sometimes called a
“deficiency”) still exists, you may have tax consequences and
receive a 1099-S form from the Lender reflecting the amount of
debt forgiven. You may then have to pay taxes on this amount
and although there are exceptions, you are urged to consult with
a tax advisor regarding your options. Also know that the Lender
is not obligated to provide you with a 1099-S for the debt
forgiveness income and won’t be penalized for failing to do so.
It is at the sole discretion of the Lender whether they choose
to give this to you or not.
If the Short Sale is successful,
it is a win-win situation for all of us. You win because you
save your credit from a tremendous hit since a foreclosure will
remain on your credit for ten years. This makes buying another
house impossible for a long time. And yes, you will have late
payments showing on your credit report, but as long as
foreclosure does not occur, after twelve months of good rental
history, you will be able to get a new mortgage and buy a house
once again. We win because once the short sale is approved, and
we buy the property or find a buyer for the property and make
our profit that way. Bottom line is, if you don’t win, neither
do we! The Lender wins because they can dispose of the property
quickly instead of holding onto a non-performing asset which in
the long run hurts them financially. Besides the Lender is in
the business of lending money not selling real estate.