Using a Mortgage Short Sale to Prevent Foreclosure

Mortgage short sale is an option offered by lenders when borrowers are unable to maintain their mortgage payments. Instead of allowing the property to fall into foreclosure, banks allow borrowers to sell their home for less than less than they owe on their mortgage loan.

Entering into a mortgage short sale can benefit all parties involved. Borrowers are relieved of the financial burden of homeownership. Banks recoup most of their investment, and buyers are able to purchase real estate below market value.

Borrowers must obtain short sale approval from their lender. Not all banks engage in mortgage short sales, nor do all properties or borrowers qualify for this type of transaction. Borrowers must be a minimum of 31 days delinquent on their loan and owe more than their property's appraised value.

Every lender handles short sales based on their own protocol. When extended, borrowers must undergo a financial audit. Lenders require homeowners to submit a short sale packet which includes financial records such as bank statements, pay stubs, income, expenses, property tax statements and previous years' tax returns.

Most lenders require borrowers to submit a short sale hardship letter outlining events which caused them to become delinquent on their note. This letter is oftentimes used as a tool to help loss mitigators determine borrowers' eligibility for short sale qualification.

The letter of hardship should be concise, yet include sufficient details of financial circumstances. It should also include any actions the borrower has taken to overcome monetary challenges. This could include setting up utilities on a budget plan, using coupons for grocery shopping, eliminating frivolous spending habits, selling an extra car or taking public transportation.

Mortgage short sales are handled by the lender's loss mitigation department. When borrowers become delinquent on their loan, a loss mitigator is assigned to work with them to establish a repayment plan or determine if they qualify for a short sale.

Loss mitigators handled multiple caseloads, so it is important to be organized and prepared when contacting them. Be prompt with providing requested documents and be respectful when engaging in conversation. Unfortunately, loss mitigators receive a considerable amount of verbal abuse from stressed out homeowners. Being nice can go a long way in obtaining a successful outcome.

A mortgage short sale is the last opportunity to prevent foreclosure. However, it is imperative to determine the type of short sale offered by the lender. Two types of short sale arrangements exist: Payment in Full and Deficiency Judgment.

Payment in Full means the lender agrees to accept the sale price as full payment to satisfy the mortgage loan. Once the sale occurs, the lender transfers the real estate to the buyer and the borrower is released from the loan.

When lenders issue a Deficiency Judgment, they hold the borrower responsible for the difference between the sale price and loan balance. Most short sale deficiencies range between $10,000 and $30,000, or more.

Once a deficiency judgment is issued it remains on borrowers' credit history until paid in full. For many people, this can take a lifetime to repay and will tarnish their credit for years to come.

Many elements are involved with mortgage short sales. If you are facing foreclosure it is crucial to contact your lender and discuss available options. Facing the problem head-on is the best strategy. Take time to become educated about mortgage short sales and weigh the pros and cons before making a final decision. If necessary, consult with a real estate lawyer or short sale specialist to obtain advice and guidance.