A short sale is a sale of a property in which the proceeds of the sale of the property will fall short of the balance owed on the property. Therefore, the property owner cannot afford to repay the liens' full amounts, whereby the lien holders agree to release their lien on the property and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release the borrower from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties involved.
A short sale is often used as an alternative to a foreclosure because it lessens additional fees and costs to both the creditor and borrower; however as well a swith a foreclosure, a short sale will often result in a negative credit report against the property owner.
When should you use a Short Sale?
When considering a short sale you must first be sure you may qualify. There are stipulations on the homeowners that qualify for short sales vs. foreclosures. Below are the criteria that must be met by a homeowner who is considering a short sale, before they are able to proceed with the short sales process.
If there have been changes in a homeowners financial situation, resulting in bringing in less money than what they were when the initial mortgage loan was made
The homeowners no longer has any funds in a savings account
Obligations on the mortgage are still current but the homeowner is able to show ample proof that expected payments for the future cannot be made
The market value of the property has declined