How a Bank Short Sale Save Your Home from Foreclosure

A bank short sale is an option offered by some mortgage lenders when a homeowner is facing foreclosure. Although the process requires considerable time and patience, this alternative gives borrowers the opportunity to be released from their mortgage loan and walk away from their property.

Lenders can enter into bank short sale agreements on all types of real estate. The most common include single family residences, commercial real estate and vacant land. Short sales are usually reserved for borrowers who do not qualify for refinancing or obtaining a loan modification.

Short selling is exactly what it sounds like. Real estate is sold 'short' of what is owed on the mortgage note. Banks will agree to accept less as long as the borrower is able to locate a qualified buyer within a short period of time.

Short sales are usually managed by the lender's loss mitigation department. Once borrowers become 31 days delinquent on their payments, their account is turned over to a loss mitigator. This individual is responsible for mediating between the borrower and lender. The goal is to arrive at a mutually-beneficial agreement.

Not all mortgage lenders participate in short sale transactions. Those that do, require borrowers to adhere to strict guidelines and deadlines. One missed deadline or improperly filed document can result with the lender commencing in foreclosure action.

Bank short sale properties are usually listed through licensed realtors. Under certain circumstances, lenders may allow a home to be placed on the market as "For Sale by Owner". When listing real estate through a realtor it is a good idea to work with an agent with experience in short sales.

If you are like most people, you probably wonder why a bank would agree to accept less than is owed. The primary reason is that foreclosures are costly and time-consuming. Foreclosing on a single property can cost the bank between $60,000 and $80,000. The process can take up to 18 months to complete.

With short sales, the process takes four to six months and there are no costly legal expenses. The lender agrees to accept a lesser amount in order to expedite the sale and recover the majority of their investment.

A bank short sale can be a saving grace for individuals facing foreclosure. Although the borrower is unable to continue living in their home, a short sale is less detrimental to their credit than foreclosure.

One extremely important issue to address is to determine the type of short sale your lender offers. Two types exist – Deficiency Judgment and Payment in Full without Pursuit of Deficiency Judgment. The first can ruin your life for decades, while the latter can remove an enormous financial burden.

Lenders who issue deficiency judgments persue the borrower for the difference between the short sale price and loan balance. If you owe $180,000 on your mortgage and the property sells for $140,000, the bank issues a judgment in the amount of $40,000.

Most people facing foreclosure don't have $40,000 lying around. Having a judgment attached to your credit can have widespread effects. If you are fortunate enough to obtain any type of credit, chances are you will pay a high interest rate. Insurance carriers can increase premiums. The judgment can even affect employment opportunities.

Payment in full without pursuit of deficiency judgment will affect your credit score. However, it takes considerably less time to recover from the financial fallout. Borrowers able to get back on track financially can apply for another mortgage loan within two years.

It is wise to become educated about bank short sales and understand the pros and cons. Talk with your lender to see what options are available. When properly constructed, short sales can be beneficial to all parties involved.