What is a Short Sale?

SHORT SALE:
During normal business cycles, property values may lose substantial value over time. This can happen in a certain region that suffers from unique local problems such as factory closures and business failures. As we have seen recently, property value declines can also happen across the entire country at the same time. Such large scale equity loss can leave homeowners searching for answers and solutions, such as a mortgage short sale.

DEFINITION OF SHORT SALE AND SHORT SALE DEFINITION
Essentially, a "short sale" or a "mortgage short sale" is the sale of real property for an amount which will not net enough to cover the current mortgages on the property. The term "short" comes from the fact that the amount that will be netted from escrow (seller proceeds) is "short" of the lender's payoff amount. Under this set of circumstances, the lender then must voluntarily agree to accept a reduced payoff amount (as opposed to the full contract payoff amount) as full satisfaction of the note and accordingly reconvey or otherwise transfer the note.

The short sale or mortgage short sale has become a viable option for some borrowers recently. Rather than surrender the deed in a deed in lieu of foreclosure or submit to a formal foreclosure, a distressed borrower might sometimes prefer to conduct the "short-sale". A true short sale definition also should include the lender releasing the borrower from further financial liability. Any good mortgage short sales should also include the lender's agreement to forego pursuing any type of "deficiency" they may be entitled to collect under prevailing state law. This definition of short sale is somewhat general, and there are alternative short sale definition purveyors with somewhat conflicting terminology, but the general concept is going to be similar.

MORTGAGE SHORT SALE
There really is no significance to calling the transaction a "mortgage short sale" as opposed simply to a "short sale". It may simply be people in the industry attempting to make the transaction sound more complex than it need be. There are negative aspects to a short sale however. A short sale may have a damaging impact on the borrowers credit rating. It is generally accepted that a short sale has a less damaging effect than a formal foreclosure however. A qualified short sale attorney, such as McFarlin & Geurts, can also bargain for and attempt to negotiate for a more favorable credit report treatment upon the completion of a short sale. This is particularly true when there are issues with the origination of the mortgage loan and note securing the short sale property.

Short sales therefore appear to make the most sense when (1) the borrower wishes to avoid a public record of foreclosure (even though short sales result in potentially negative credit reporting) or (2) the borrower is at risk of owing a deficiency judgment to one or more lenders.

A borrower who is contemplating negotiating a short sale or mortgage short sale should work with an experienced real estate attorney to make certain that the matter is properly handled and all potentially harmful legal issues are addressed. McFalin & Geurts attorneys have experience and expertise negotiating short sales, and our in house real estate brokerage Clear Point Real Estate Services can handle the real estate aspects of the transaction.

SHORT SALE DEFINITION- AN OVERSIMPLIFIED ALTERNATIVE
So here is your alternative short sale definition: a mortgage lender of real property allows the property to be sold to a 3rd party for less than the outstanding balance (or payoff) on the mortgage note.

Definition of Short Sale- a More Detailed Discussion
Currently, short sale transactions represent a growing number of home sales. Lenders, in the past, didn't view a short sale transaction as a good alternative and were not encouraging short sale transactions. Most lenders had been focused on loan modifications and workouts with homeowners in an effort to avoid foreclosure, and avoid a mortgage short sale. In certain struggling markets, however, the opportunity to complete a short sale transaction is increasing and a great percentage of home sales now are short sale transactions.

MORTGAGE SHORT SALE
There are several issues that contributed to the rise in short sale transactions and hence the moving (hard to pin down) short sale definition. After the unsustainable run up in real estate prices that occurred in the recent housing boom, many homeowners were caught off guard when the market abruptly changed course. Financial institutions were also caught off guard, and were not prepared to process all the loan modification and short sale requests they were receiving.

Commonly, lenders had been issueing mortgages with low teaser interest rates to high-risk (subprime) borrowers without sound underwriting. Most of these borrowers had little or no documentation of their financial capacity to repay the loan and frequently these loans allowed, or even encouraged, no down payment. For a time, it was literally easier and less expensive to buy a house than to rent an apartment or lease a car.

Accordingly, borrowers had no margin for error, limited equity and few choices when faced with financial hardship or decreasing real estate prices. Borrowers had been banking on simply refinancing their way out of their loan each time the teaser rate adjusted. Years ago subprime borrowers would have been denied credit.

The rise in short sale transactions has been called an alarming issue, however, as alarming as it may seem at first glance, it is a necessary process the market must go through to properly "re-price" the enormous amounts of housing inventory burdening the market. Keep in mind, the alternative to a short sale is typically foreclosure, which is not particularly desirable for any party involved. So perhaps the short sale definition can be expanded. An updated short sale definition could include the statement that a formal foreclosure was avoided.

WHAT IS A MORTGAGE SHORT SALE?
A mortgage short sale can be defined as the sale of a property by a financially distressed homeowner for less than the outstanding mortgage balance due where the net proceeds from the sale will insufficient to cover the outstanding mortgages. The lender then accepts the less-than-full repayment of the mortgage (and the borrower is released from the mortgage obligation) in order to avoid what would amount to larger losses for the lender if it were to foreclose on the mortgage.

No definition of short sale, short sale definition, or mortgage short sale definition is perfect, but the general idea is consistent.If you are a borrower considering a short sale,it may be tempting to work with a local Realtor, without considering other alternatives such as a law office, but in conjunction with our in house brokerage Clear Point Real Estate Services, McFarlin & Geurts can offer you the protection and peace of mind of working with an attorney and effectively service your short sale listing to find you the most efficient and safest solution.Remember, Realtors are primarily interested in "closing the sale," not necessarily what's in your best interest.