Do you really know what a “Short Sale” means?

Do you really know what a “Short Sale” means?

The term “Short Sale” has become increasingly too familiar in today’s modern vocabulary due to the down turn we have experienced in the real estate market. Dictionary.com defines Short Sale as a noun: “an act or instance of selling short”.

short sale property guidingWhen an individual or business entity (Borrower) obtains financing (also known as a loan) from a Bank or Lender, the amount of money given is based upon not only the Borrower’s request for the amount of funds needed to purchase improved or unimproved (vacant) real property, but it is also based upon the Bank or Lender’s parameters and/or policies to meet their loan to value percentage requirements. This means the amount of the loan must equal a certain percentage of the value of the real property which is the collateral for the loan. The Bank or Lender will have the Borrower execute a Promissory Note (legal document setting forth the terms of the loan) and the Borrower will give a Mortgage to the Bank or Lender (legal document recorded in the public records which evidences a lien on the collateral pledged by the Borrower to secure the loan). Prior to the decline in the values of real property, meeting the loan to value percentage requirement was not an issue in the relationship between the Borrower and the Bank or
Lender. Due to the continued decline in the property values over the past few years, the Banks and Lenders are in a position where the values of the real property (the collateral) are substantially lower than the amount of indebtedness of the loan. The Borrowers are in a worse position and are unfortunately faced with a perfect storm scenario: decline in
the value of their real property with an inability to refinance or sell the home for the outstanding amount owed, while trying to exist in a depressed economy, coupled with their own personal hardship that has been caused by an unexpected event.

When the value of the collateral has decreased past the amount of the outstanding amount owed on the loan and the Borrower no longer can make the payments on the indebtedness, it is time to consider a loss mitigation option. A Short Sale is considered one of the available loss mitigation options. A Short Sale is when the sale of real property (the collateral) will result in proceeds from the sale being less than the amount required to pay the Bank or Lender in full the total amount of the outstanding indebtedness owed. Once the Borrower realizes they are in such a situation, they request the Bank or Lender to accept the proceeds as a full payoff of the loan. This is where it
gets very tricky. A Borrower should ensure their full understanding of a Lender’s response to the Borrower’s request for a short sale.

There are many ramifications of a Short Sale and most Borrowers proceed without understanding them or after being misinformed. It is important to make sure there is a full understanding when proceeding so there are no surprises in the future.

DELLUTRI LAW GROUP
3002 Del Prado Blvd. South, Ste. A

Cape Coral, Florida 33904
Ph.   (239) 549-0900
Fax. (239) 549-0902

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Posted on July 10, 2013, in Legal and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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