A real estate short-sale occurs when someone sells their home for less than they owe the bank. People considering them are trying to get out of a mortgage payment they can’t afford, usually caused by unemployment, health care bills, divorce, or over use of debt related to these circumstances or not. Sometimes the bank considers the sale as paid and full, and doesn’t seek to recover their loss through collections or legal means. The lender could change their mind and seek to recover their loss later, only time will tell. Forgiven debt may have tax ramifications, so sellers should talk to their tax advisor.
Lenders have been slow to respond to short-sale offers by qualified lenders, and often the deal falls apart, and the seller is back to where they started. The foreclose process continues, and either their financial situation improves, or the bank comes through with a loan modification: lower mortgage amount or interest rate in an effort to keep people in their home. There is federal funds to help with this, but it requires a cooperative lender.
To help speed the short-sale process, and if the loan is a Fannie Mae or Freddie Mac, short-sale requests to lenders will have about a 30-day response turnaround, and a final decision in not more than 60 days. This change is being imposed by the Federal Housing Finance Agency.
If you are in a financial situation where you are trying move on to more affordable housing, and don’t want to do the more drastic ways to dump your house like foreclosure or bankruptcy, this might be a solution for you. It is a win for the lender too when ever they can secure a new mortgage with a qualified buyer, instead of selling it in a sheriff sale for much less, add to that the risk of many months of vacancy, no maintenance, and thieves prey on the plumbing and appliances.