What is a Short Sale?

A Short payoff sale is generally defined by loan loss mitigation professionals, as:

A sale in which a lender allows the property securing a mortgage or deed of trust loan to be sold for less than the existing loan balance, due to factors such as the Borrower's financial circumstances, the property's physical condition, and local real estate market conditions.

Most lenders will only approve a short sale as a last resort:

• The property was purchased or refinanced at the top of a seller's market at an over-inflated price and has had a substantial drop in value.
• The property is located in an area where property values have dropped due to a dramatic change in the local real estate market.
• The borrower has a true hardship or circumstance that is beyond the borrower's control.
• The property's "as-is" condition has deteriorated to the point where it's not financially feasible for the lender to put it in a marketable resale condition.
• The proposed purchase price is more than the lender would be able to sell the property for after foreclosing on the loan.
• Any sales commission the lender must pay is less than what they would have to pay to sell the property after foreclosing on the loan.

Six Factors lenders consider during the Short Sale for approval:

• The borrower's overall financial condition.
• The property's "as-repaired" value.
• The property's "as-is" value.
• The cost to put the property into resale condition.
• The cost of securing and maintaining the property while it is being marketed for resale.
• The cost of marketing and selling the property.

Other Factors that influence a lenders willingness to approve a Short Sale:

• The number of non-performing loans that the lender has in their portfolio.
• The financial condition of the third party investor who owns the loan.
• The lenders overall financial condition.
• The loss mitigation policy of the third party investor who owns the loan or the lender servicing the loan.
• The loss mitigation policy and procedures of the government agency insuring the loan.

As Nikki stated, It is crucial that the Seller obtain advice from either his/her attorney or CPA to verify that selling of their home with a short sale is in their best interest.

Contact an Escrow Officer when you're ready to open a Short Sale Escrow.