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A short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's Loss mitigation department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.


Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoidance of having a foreclosure on their credit history and the partial control of the monetary deficiency. Additionally, a short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.


Creditors, their surrogates, and those who politically benefit from the mortgage industry -- especially those in the real-estate, mortgage servicing, and banking -- wrongly portray short sales as difficult to complete or morally questionable. This is simply untrue if the value of the underlying asset, a home, has fallen dramatically and the debtor has limited assets. Short sales are extraordinarily common in standard business transactions in recognition that creditors are not doing debtors a favor but, rather, engaging in a business transaction when extending credit. When it makes no business sense or is economically not feasible to retain an asset businesses default on their loans (called bonds). It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of these future defaults.



Lenders have a department (typically called a loss mitigation department) that processes potential short sale transactions. Typically, lenders do not accept short sale offers or requests for short sales until a notice of default has been issued or recorded with the locality where the property is located.

Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's approval. "Red tape" is very common in short sales, requiring potentially multiple levels of approvals and conditions. Junior liens - such as second mortgages, HELOC lenders, and HOA (special assessment liens) - may need to approve the short sale. Frequent objectors to short sales include tax liener's (income, estate or corporate franchise tax - as opposed to real property taxes, which have priority even when unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the short sale.



Credit reporting

A short sale does adversely affect a person's credit report, though the negative impact is typically less than a foreclosure. Short sales are a type of settlement. Depending upon other credit information it is typically possible to obtain another mortgage 1-2 years after a short sale.


For more information on this topic as well as other topics related to the current housing market email Kevin Fike or call 480-507-6000. We look forward to hearing from you.

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Is Your Home Worth Less Now Than When You Bought It?

We may be able to assist you with your current financial situation.  Whatever has happened in your life to affect your mortgage payments, we can help.

Don’t give up!  Your situation is NOT impossible, even if others have told you so. The most important thing now is to Save Your Credit and avoid foreclosure.

Since your lender may take serious action against you by filing foreclosure papers, we urge you to contact us right away. 


We are licensed Realtors, specializing and certified in Foreclosure Prevention. (We Know What We Are Doing When We Help You.) We are NOT investors. We want you to come out the “winner” in this situation, and protect you from those seeking to take advantage of your situation.

The only way we can help you is if you call us today for a confidential consultation appointment to talk about your options to avoid foreclosure.

If you choose to take no action to protect yourself from foreclosure your lender has the legal right to sell your property at auction.



 Please let us help you,


HAFA - Home Affordable Foreclosure Alternatives


The Obama administration has released detailed guidance on a new Home Affordable Foreclosure Alternatives program that features cash incentives for borrowers, servicers and investors for executing short sales or deeds-in-lieu of foreclosure.

The HAFA program is available for loans that otherwise meet the criteria for the Home Affordable Modification Program but can’t be restructured successfully. The guidelines issued recently as HAMP Supplemental Directive 09-09 only apply to loans not owned or securitized by Fannie Mae and Freddie Mac, which have their own short sale and deed-in-lieu incentive programs.

The new program takes effect April 5, 2010, and servicers are expected to develop their own written policies to implement it. All HAFA loans must first be considered for HAMP modification, and data collected in that process can be used for assessing a possible short sale or deed-in-lieu transaction.

If the servicer hasn’t already done so, the borrower must be advised in writing about the availability of a short sale or deed-in-lieu and have 14 days to mull it over. Servicers are expected to perform a financial analysis to determine whether a short sale or DIL is in the best interest of the investor or mortgage insurer, but the HAMP net present value model does not project such cash flows.

The servicer has to get an independent property valuation that cannot be charged to the borrower, and a title check must also be completed. If neither a short sale nor DIL is available, written notice must be made to the borrower.

Before approving a short sale, the servicer has to determine the minimum net proceeds that will be accepted by the investor. Customary transactions costs must be taken into account. The program requires servicers to use a standard short sale agreement that outlines the responsibilities of the servicer and the borrower that includes a fixed termination date not less than 120 days after the agreement takes effect.

A DIL transaction must include the full release of the debt and waiver of all claims against the borrower. The borrower has to agree to vacate the property by a certain date, leaving it in clean condition with a marketable title.

Servicers may agree to a DIL even if the borrower hasn’t already made a good-faith effort to market the property, if that’s acceptable to the investor.

No Foreclosure

Servicers may initiate or continue with a foreclosure proceeding during the short sale or DIL process, but the foreclosure can’t be completed while assessing a borrower’s eligibility, waiting for the return of an executed agreement, during the term of a short sale agreement or pending transfer of the property during a DIL.

The borrower’s mortgage payment cannot exceed 31 percent of gross monthly income while a short sale or DIL is pending, and servicers may waive payment altogether. The borrower is responsible for clearing up any other liens on the property, although the servicer may negotiate on the borrower’s behalf. Second lien holders can get up to $3,000 from the proceeds of the sale to release the loan.

Following successful completion of a short sale or DIL, the borrower can get up to $1,500 to cover relocation expenses. Servicers are paid $1,000 to cover administrative and processing costs for these transactions. Investors will be paid a maximum of $1,000 for allowing up to $3,000 in short-sale proceeds to be paid to second-lien holders.

The program features a complete set of required standard documents and reporting requirements. As with HAMP itself, Fannie Mae is serving as the administrator for the short sale/DIL program and Freddie is the compliance agent.

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