What is a Short Sale?

A short sale is when the outstanding mortgage (s) against a property is/are greater than what the property would sell for. Short sales are a way for homeowners to avoid foreclosure on their homes and still be able to pay off their loan by settling with lender.

This is the fastest-growing foreclosure alternative. Many lenders will allow a short sale, when the home sells for less than the amount of the loan. This is attractive for lenders because they lose less money than in a foreclosure. Also, a short sale takes less time to process, which helps the bank with their balance sheet.

One myth about short sales is that the impact to your credit is less than a foreclosure. This is true under certain conditions, but not always. It is important to understand that after a short sale, you may not be eligible for maximum financing for 3 years - 2 years if you have 20% down. You should discuss this with one of our REALTORS or preferably one of our loan officers.

Short sales are paperwork-intensive as there are many details and each deal is reviewed individually on its own merit. If you're considering this option, it's critical to work with a trained real estate agent who knows all the steps required to successfully complete a short sale or utilize the services of a short sale negotiator.

An experienced Merchants Realty agent can guide you through the process and act as a liaison between all the parties involved.

On April 5, 2010, U.S. Treasury announced guidelines for streamlining and simplifying the Short Sale Process through the HAMP program called HAFA (Home Affordable Foreclosure Alternatives). Ask your agent for details.

HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program. Servicers participating in HAMP are also required to comply with HAFA. A list of servicers participating in HAMP (including HAFA) is available at:
www.makinghomeaffordable.com/contact_servicer.html.

HAFA Provisions

• Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses standard processes, documents, and timeframes/deadlines.
• Provides the following financial incentives:
  • $3,000 for borrower relocation assistance;
  • $1,500 for servicers to cover administrative and processing costs;
  • Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.