In essence, a short sale occurs when a homeowner’s mortgage balance is more than the property’s present market value. Rather than face foreclosure, the lender agrees to take less than what is owed to settle the debt.
When a homeowner is behind on mortgage payments, or can no longer afford to make the monthly payment, he has the option to put the home on the market with a knowledgeable real estate agent in hopes of getting a quick sale. To make this happen, the home is priced at or below market value, regardless of the loan balance.
The homeowner communicates to the lender what he is trying to accomplish. The lender will send a package to be filled out by the homeowner to determine if in fact this is a hardship situation.
Once an offer is received for the property, a real estate attorney is obtained to negotiate with the lender. If there is more that one lien it has to be a part of the overall negotiation as well. The lender will determine how much of a loss they are willing to take which could include real estate commissions, closing costs for the buyer, the homeowners closing expenses (maybe even financial help for the move out).
When the price is agreed to by all parties, the buyer will usually have a home inspection for informational purposes and their loan process is completed. The real estate closing is conducted basically similar to a regular sale.
