What is a Short SaleThe sale takes place after an agreement between the owner and the mortgage lender in order to avoid foreclosure that has disadvantages for both parties. For example, consider the case of a homeowner who can no longer afford to make mortgage payments on a property with a remaining loan balance of 200,000 and a market value of only 150,000. In such a case the owner may agree with the lender to have his property sold at 150,000 in order to avoid foreclosure, which will have a very negative impact on his/her credit rating. The lender may also accept to have the property sold via a short sale at its market value and forgive the remaining balance of 50,000 in order to get the cash faster, and avoid the costly and lengthy foreclosure process, which will not necessarily secure higher sale proceeds, especially if market values are deteriorating. Short sales may provide opportunities for significant profits if they can be bought at a significant discount. However, this is not the case usually since the lender will try to recoup as much of the mortgage balance and will try hard to have the property sold at market price. For this reason, investors that are lured by agents who use the pitch of a “discounted price” need to assess very carefully the true market value of such properties, in order to ensure that the asking price represents indeed a significant discount. Of course, the remaining loan balance by no means represents the true market value of the property.
• Investors need to present documentation of funds (or a pre-approved letter from lender) with their offer for a short sale, which needs to be communicated to the lender by the seller within three days of the date of the offer. • Lenders must respond to the offer within 10 business days • Investors are prohibited from re-selling the property within the first 90 days from the purchase The HAFA program covers only homeowners with loans owned by Fannie Mae or Freddie Mac
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