Buying & Flipping – Houses & Websites

By: Ravisankar
Short sale

What are the options in front of a mortgagor when he faces a financial crisis and is forced to default a mortgage loan? There are a few ways he can release himself from the clutches of the bank and short sale is one of them. A short sale, as the name suggests, is basically a sale of a property which raises a price, not enough to meet the demands of the mortgage loan amount. The banks, in some cases, decide to discount a loan and waive a certain portion, so as to enable the mortgagor to repay the amount and close the loan. The proceeds of such a sale will in most cases fall short of the loaned amount and hence the entire amount is turned over to the bank.

Most short sales are initiated by the owner, who wants to shrug off the loan and finish liabilities. The negotiations for such a sale start with the loss mitigation department of the bank. This department is available in most lending firms and is required to recover loans disbursed and also proceed with alternate steps to recover in case of defaults. Normally, a short sale is the last option a loss mitigation department shall agree to and does so only after other options are totally exhausted.

As opposed to short sale, a foreclosure is more acceptable to banks and other lending firms. The latest financial crisis, a result of the huge foreclosure has forced all to rethink about the option of short sales. But, this option is riddled with complexities. Once the loss mitigation department gives clearance to go ahead with a short sale, the bank shall evaluate the property and finalize on a valuation deemed fit. After this, clearances are required from tax agencies and sometimes even owner’s associations to proceed with the sale. Only after these clearances are obtained, can one proceed with the sale, as planned.

In case of a buyer interested in a short sale, this entire procedure might not be held as planned. As banks are reluctant to agree with shorts sales, and do not want to incur losses, they try to defer the activity till the last moment. For this, they negotiate with the seller to continue occupying the property after reworking the terms of the loan. If this works out to be successful, the short sale might even be cancelled and deposits of prospective buyers shall be refunded. Hence, this might result in loss of precious time for the buyer and he will have to start the entire process again.

As has been documented in earlier cases, the entire short sale system works out to be very complicated. Hence, it is always advisable to engage the services of an experienced lawyer specialized in short sales or even short sale negotiators when embarking on a mission to either indulge in a short sale or to buy one.

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