Understanding the short sale definition goes back to where the term “Short Sale” originated on Wall Street over 100 years ago. A short sale referred to the act of a market maker in a stock selling shares that he did not own at the time with the anticipation of buying these shares back later at a lower price. This practice is very prominent today on every stock exchange and in the OTC (Over the Counter) Markets.
In real estate the Short Sale definition takes on a different connotation. In this case the homeowner of the property cannot simply sell his home because he owes more on his mortgage than he can receive from the sale. The homeowner is the actual seller of the property but to do so he must get permission from his lender.
The lender not only has to agree to the sale but he also has to reduce the principal amount of the mortgage that the homeowner owes. For example, if the homeowner owes $150,000 and he can only sell his home for $100,000, the lender must agree to a “payoff” of $100,000 or a $50,000 write off of the balance owed.The lender can make other offers to the homeowner to solve the problem such as a loan modification or a deed in lieu of foreclosure. If the homeowner wants to stay in his property, he should try a loan modification by contacting his lender directly and asking to start the loan modification approval process. The homeowner can go through this process himself and usually there is no need to pay someone to do the work for him.
The other option is a “deed in lieu of foreclosure” which is where the homeowner simply deeds his home over to the lender usually in exchange for forgiveness of the loan balance or any deficiency and often receives a small amount of cash to leave. This is the quickest solution but the homeowner must be ready to leave quickly. If the property has two or more mortgages by different lenders, a deed in lieu of foreclosure will not be offered – unless the second mortgage will accept a payoff of substantially less than is owed. For these reasons, this option is the least used by homeowners and lenders.
The “final solution” is for the lender to take the property through the foreclosure process. This is costly and time consuming and is the worst option for the lender and the homeowner. This is where understanding the short sale definition and the differences between a short sale vs foreclosure is so important to the home owner.
The most workable solution is an “arm’s-length” short sale by the homeowner to a buyer who will likely be a company who buys houses like HomeSolutionsFla.com as a real estate investor. Arm’s length simply means that the buyer is in no way related to the homeowner, otherwise there can be bank fraud involved. The short sale process allows the homeowner to stay in the property a little longer if needed and significantly reduces the impact on his credit score and credit history. Contact us to see is this type of short sale works for you. It costs you nothing to do so and it is an easy hassle free way to know all your options.