What is a Short Sale?
A Short Sale is when a lender accepts a discount on a mortgage to pay off a loan to avoid
a possible foreclosure auction or bankruptcy. While the property is still being purchased,
the Lender’s approval of the contract and terms becomes necessary as they must approve
the discounted pay off. For example: A homeowner, who is facing foreclosure, has an
existing first mortgage of $300,000. The Buyer writes an offer for $220,000, which is
accepted as full payment for the loan. This is a
It is best to do a short sale when the property is in the pre-foreclosure stage because the
banks do not like excess inventory and bad loans on their books.
SHORT SALE.What Happens to the Seller’s Credit Rating when they Allow an Investor to Short Sell
their Property?
What typically happens is that the loan will show as “paid” on their credit report;
however there will be a notation that says “settled for less than original owed” or
something along these lines. It is more favorable for a homeowner to short sell than to
have a foreclosure on their credit report.
Can an Owner Profit from a Short Sale?
The seller cannot profit (monetarily) from a pre-foreclosure short sale.
How Do Bankruptcies Affect the Possibility of Doing a Short Sale?
Most mortgages won’t consider a short sale if the homeowner is in bankruptcy because
negotiating a short sale payoff is considered a collection activity. Collection activities are
prohibited in bankruptcy.
How Late in the Pre-Foreclosure Process can you Start a Short Sale?
Try to allow a window of at least 90 days to effectuate a mortgage approved, preforeclosure
Short Sale.
*$300,000 (Loan) - $220,000 (Offer) = $80,000 Short Sale
*Always contact your accountant for possible tax liabilities
Short Sale FAQs
