They have become one way out of an untenable jam for many homeowners who can't make their mortgage payments in this tough real estate market. In a short sale a lender will allow the homeowner to sell the property for less than what the loan balance is. It often means the matter is over and done with, once the sale is closed. At least that's what the borrower is aiming at.
Mortgage lenders can go after the now former homeowner later for the unpaid portion if they choose to, as long as the loan documents and state laws support that. Frequently they don't bother with it even if they legally could because it might turn into an expensive chase after something that possibly isn't even there.
Lately, though, mortgage firms have become more aggressive on this issue, perhaps because there are signs that the housing market is on the verge of turning around. Nowadays a short sale agreement often includes a promissory note, a written pledge to pay back a debt. It usually is buried among the paperwork, so anyone contemplating such an action ought to carefully scrutinize what they are asked to sign.
Every mortgage lender essentially has its own policy on this. Aspects they consider is what type of assets the borrower has and his employment status. Lack of financial hardship is going to be a red flag. What if the house was an investment property? That's a factor. Another thing weighing in is the unpaid loan balance. To go after a homeowner who only owes, say, $15,000 probably isn't worth it. But if the number goes to $80,000, for instance, things quickly become much more focused.
Prices have retreated dramatically in the once high-flying areas like Las Vegas, Phoenix and several California and Florida counties and have left thousands of homeowners with vast gaps between their mortgage balance and current home value. They are severely upside down. It's predictable that short sales in these loactions are being quite closely analyzed.
Bottom line, know what you are signing when considering a short sale.
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