A mortgage short sale may allow a person to avoid foreclosure, but it may not be what the person thinks. The term "mortgage short sale" sounds like it refers to the sale of a mortgage, but it doesn't.
Mortgage short sale actually refers to a mortgage lender accepting less that the amount due on a mortgage so that a borrower can sell his house.
Here's how it works:
- A borrower cannot pay his monthly mortgage payments. Whether the reason for not being able to pay is due to a serious medical illness, loss of job, etc. does not make a difference. When the borrower cannot pay, the mortgage lender begins to think of foreclosure.
- The borrower realizes that he is going to lose his house because he cannot pay, but he wants to avoid foreclosure and having a mortgage foreclosure on his credit record.
- The borrower knows or has found a buyer for his house. However, the potential buyer either cannot or will not pay a sales price high enough to pay off the borrower's mortgage. Perhaps, house values have fallen or the mortgage may have been a 100% loan to start with and then with interest and late fees, etc. added, the actual amount owed is much greater than the value of the house. Again, the reason doesn't matter.
- The borrower contacts his mortgage lender and ask if the lender will accept a mortgage payoff amount which is less than the actual amount the borrower owes the lender so that the borrower can sell his house.
- If the mortgage lender agrees to accept less than it is owed, then it is called a mortgage short sale. It is not that the mortgage is sold. Rather, the borrower's house is sold and the mortgage lender accepts as a mortgage payoff an amount short of the amount owed on the borrower's mortgage.
Actually, a mortgage short sale can be beneficial to a mortgage lender. Foreclosure can be expensive for a home lender. The lender has to pay court costs, attorney fees, house maintenance costs, house sale cost, realtor fees, etc. It may take a long time to sell a house. And the lender may have to sell the house for less money than it wants.
Depending on the amount the mortgage lender receives in a short sale, the lender may actually lose less money than going through the entire foreclosure process.
This is general information. If you need specific information or have any questions of any nature whatsoever, talk with a lawyer licensed in your state.
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