Background of Short Sales

Short Sale
191 Sand Creek Rd, Ste 100 Brentwood, CA 94513
Background of Short Sales
Lenders began to accept short sales in the 1990s with the onset of sub-prime
lending. Homeowners who qualified for their loans with less than perfect credit,
little or no money down have been pressured as the market values declined and
have found that when personal finances were not able to make the commitments of
the monthly mortgage payments (loan default) for various reasons, the value of the
home was not enough to pay off principle balance, late fees, attorneys fees or
closing costs. Since foreclosing on a home can cost a lender upwards of $50,000
each property and take more than 9 months in some cases, short sales are a more
cost and time effective alternative. On average savings to the lender can be more
than $15,000 and 6 months time.
Short Sales
A short sale (also known as a short payoff) occurs when a lender or lenders accept
a discounted payoff on an existing mortgage, with $0 in closing for the homeowner,
to avoid the cost of a foreclosure. In other words, when a homeowner owes more
than can be collected through a Real Estate sale, a short sale allows them to sell
their property to avoid a foreclosure for themselves and the lender.
If the seller has other assets or is employed, the lender might choose to workout a
compromise sale, where a demand is submitted to escrow to allow the sale to close
but will require a note from the seller for the balance (or a portion of the balance).
This note may be secured by other property, or a personal note.
Benefits of a Short Sale
Homeowner: Provides homeowners with an alternative to the most
derogatory credit occurrence besides bankruptcy, foreclosure.
Lender: Lenders save time and money by negotiating short sales instead of
costly time consuming process of foreclosure.
Buyer: Provides purchasing opportunities that REO (bank owned) properties
can’t. Let’s face it, if you are willing to be patient through the approval
process, you can pick up great properties at below market pricing.
Future of Short Sales
It is predicted that short sales will only grow as an alternative to foreclosures.
Many of the risky lending practices that led to the housing boom in the late 1990s
through the early 2000s; 0% down payments, interest only loans, adjustable rate
“teaser loans” and loans that negatively amortize are fueling today’s mortgage
crisis and foreclosure wave. With no clear indication of a “bottom” to this
devaluation slide, it is foreseeable that there will continue to be more short sales
and foreclosures for some time coming.