What is a "Short Sale"?
A “Short Sale” is a sale where a lender agrees to take less than the full amount due on the loan on the property. If there is more than one lender, it is the junior lender (as measured by time of filing of the deed of trust) who is in the greatest danger and should be willing to take less than the full amount due. The reason for this is that, if there were a foreclosure by the holder of the most junior lien, they would not get the full payment. If there were a foreclosure by a senior lender, such as the holder of the first, the junior lien holder(s) could get foreclosed out, potentially getting nothing.
Institutional lenders understand this, and usually do not want to take a property back as a foreclosure into their Real Estate Owned (“REO”) department, since this is an expensive process, and looks bad on their record with the regulators. They will usually work with you, but you have to find the right person to talk to, usually a vice president or department head.
If the junior lienholder is a hard money lender, friend or family member, you may find it difficult or impossible to negotiate with them. You may not have a saleable listing. One phone call to that junior lienholder may make that clear.
Please be aware that:
1. Lenders are under no obligation to agree to a short sale; although most institutional lenders will actively try to avoid a foreclosure by working with the seller/borrower on a short sale.
2. Lenders are under no obligation to process a request for a short payoff within any particular timeframe. So sellers, buyers and agents must be prepared for a process that may take weeks, or even months, regardless of the timeframes in a Purchase Agreement.
3. Lenders are under no obligation to agree to a short payoff demand that will allow brokers to be paid a commission. However, most institutional lenders will agree to a payoff demand that will allow brokers to receive a commission, if not necessarily the full commission agreed to by seller.
If you would like to know more, please contact me.
