Loan Modification

What Is A Short Sale?

By Kurt O'Keefe, Detroit Consumer Attorney

When your home is not worth as much as you owe on it, and you sell it for less than the amount that would pay the mortgage, or mortgages, that is a short sale.

Last month, the Obama Administration announced changes in the making homes affordable program related to short sales.

You are short of the funds needed to pay the liens, or mortgages, on the home.

Title to your real estate can only be transferred, or sold, is if the mortgage companies sign off, or agree.

You cannot force them to take less than you owe them.

But, in this market, sometimes the mortgage company will agree to take less than the balance.  That way, they at least get some money, and avoid the cost of foreclosing, taking the property back, fixing it up, hiring a realtor to sell it, and so on.

The mortgage company may release their lien to allow the sale to close, but may insist on you signing a note to pay the difference.

That is, if you owe $150,000, and sell your home for $100,000 net closing costs to the mortgage company, they may require that you sign a contract to pay them the $50,000 difference.

Consumer attorney David Leibowitz has posted on this situation, in which you may still want to file bankruptcy.

Some times the first mortgage company will take the money and run, and release you from paying the balance.   Be sure you know the tax consequences of a short sale.

Ooops, what if you owe a second mortgage?

Ruth Simon of the Wall Street Journal did a story last month on short sales and second mortgages.

Second mortgage companies have to sign off for a sale to go through, of course, they will not normally do so without getting money.

So, the first mortgage company agrees to give them something out of the sale proceeds so that the sale goes through.

But, that second mortgage company can sign off its lien and still chase you for the balance.

If you are unsure about what happens after a short sale, consult an experienced attorney.

Full post as published by Mortgage Law Network on June 30, 2009 (boomark / email).