With property values falling rapidly over the past year, most home owners in our area who purchased after 2004 owe more on their home than it is worth in the current market.  So what do you do if you have to sell because of a relocation or a financial crisis?  It used to be that your only option was to walk away from your home and bear the brunt of a foreclosure on your credit history.   Because this is so prevalent now banks and consumers have reached an agreement of sorts that now offers another option.  That's the short sale.  It is now possible to negotiate with your lender to pay off your mortgage (via a home sale) for less than what you actually owe.  While this is a relatively new development in the world of real estate sales, it makes a lot of sense in the right situation.

We've listed below some of the top questions that we are asked about short sales and the short sale process. 

Why would the bank agree to take less than what I owe to satisfy my mortgage?
Simply put if your home goes to foreclosure due to non-payment the bank is responsible for the legal fees to foreclose, they are not getting any income from your mortgage because you've stopped paying, they are responsible for the legal costs to formally foreclose, they are then responsible for the management of the asset (your home) including utility costs, mortgage, and maintenance if applicable.  They must then hire and pay a real estate professional to sell your home, in a declining market the value 6 months from now is likely going to be less than it is today so they will have to offer the home at a lower price.   For this and many other reasons, banks do not want to be in the real estate business. 

How will a short sale affect my credit?
This will really be decided by your lender.  We have been told that it is not as devastating as a foreclosure but again this is a relatively new real estate trend and I have yet to see a borrower applying for credit that has been affected by a short sale.  Here is some of the information that we gathered on the Internet.

What happens to the "short fall amount"

A short sale is simply requesting to your mortgage lender that they accept a payoff (via a sale) that is less than your mortgage amount.  With property values falling rapidly in our area, most home owners that purchased after 2004 are now in a position of negative equity with a home that is worth less than what you paid for it.