If you are one of the many homeowners who have fallen behind on your mortgage payments and you don't see any way to avoid foreclosure, a short sale may offer you the least painful way to resolve the situation.
A short sale is when a lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the home by a financially distressed owner. The lender forgives the remaining balance of the loan.
What's in it for a seller?
Obviously, the ideal scenario would be that you magically catch up on your mortgage payments and keep your home. But for an increasing number of Americans, that is not a realistic possibility, so it's to your advantage to take an active role. This is what a short sale is all about -- resolving the problem, as opposed to simply hiding from your lender and hoping the issue will go away or, worse, walking away from the property.
As a seller, there are cons to a short sale. Obviously, you will lose your home -- but that will happen anyway when the bank forecloses. You will also walk away without a cent in profit from the sale. And, your credit score will take a major hit.
However, because you are making a good faith effort, the lender may look more favorably on you, and perhaps be willing to help minimize the damage to your credit score. You are also spared the stress and embarrassment of a long drawn-out foreclosure process. That's may allow you to feel more in control and that you have a more direct role in paying off part of the debt. Remember, too, that every short sale is a negotiated agreement between the owner and the lender. In a foreclosure, the lender can always pursue the seller for a deficiency judgment to recoup the difference between what it was owed and what it actually collected. In a short sale you may be able to get the lender to accept the sale as "payment in full without pursuit of any deficiency judgment." The lender might agree to that release in return for the seller showing the home, maintaining it as well as possible and not trashing it on the way out.
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