The question was recently asked of me what the difference between a short sale and a foreclosure is. Since I assume most people have a general understanding of what a foreclosure is, I will focus on explaining what exactly a short sale is.
The short sale addendum defines a short sale as “a transaction in which any Lien Holder releases it’s lien against the property and (a) accepts an amount less than the full amount Lien Holder claims is owed or (b) treats the debt secured by the Lien differently than as originally provided for in the evidence of debt (such as a promissory note). Ok now in simple English, a short sale is an alternative to a foreclosure that may be less detrimental to the homeowner.
Let’s say John Smith bought a home at the height of the real estate market and today he is upside down on it (owes more than it’s worth). Now if John like many Americans falls on tough financial times, he may no longer be able to afford his monthly mortgage payment. Furthermore, John may not be able to afford to sell his home for less than the loan amount and bring the difference to closing to pay back the lender. However, if John can document his inability to repay the loan, with the help of his Realtor® he may be able to negotiate a short sale with the Lien Holder. In the short sale, the Lien Holder would agree to accept an amount less than what is actually owed, there by making it possible for John to sell the home without it being foreclosed upon.
It is important to understand however, that short sales are by no means the perfect solution. Sometimes the Lien Holder does not agree to release the Seller from the unpaid portion of the debt and the Seller may remain liable for the debt after closing. There for, as I said in the beginning, a short sale is an “alternative” to foreclosure not a solution or fix all.
If you have any questions about this or think you may need to try to negotiate a short sale with your Lien Holder, please feel free to contact me anytime. You can also find lots more information on Summit County Real Estate on my web site
All the best,
Tyler MacGuire e-PRO® SFR
Broker Associate
Omni Real Estate Company
Office: 970-468-2740
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