What is a Short Sale?
The simplest answer would be that a short sale is when a property is sold for less than what is owed on the mortgage. If your house is “under water”, meaning the current market price is less than what you owe, a short sale can be used to avoid a foreclosure. A home may also be a short sale even if the sales price is market value, but will not cover the closing costs.
Not every property will qualify as a short sale. Banks and lenders are not obligated to approve short sales. If it is in a lender or bank’s best interest to approve a short sale they probably will, but this is not always the case. For instance, if the lender will make more money through a foreclosure, they may not approve the short sale. Whether or not a bank will make more profit from a foreclosure or a short sale is dependent on investor guidelines.
Fannie Mae guidelines have attempted to streamline the process. They allow lenders to approve short sales for certain borrowers who have no yet gone into default. Leslie Peeler, a Senior Vice President with Fannie Mae, states that, “Short sales have become an increasingly important tool in preventing foreclosures and stabilizing communities. We want to help as many homeowners avoid foreclosure as possible. It is vital that servicers, junior lien holders and mortgage insurers step up to the plate with us. These guidelines will open doors to help more homeowners qualify for short sales, remove barriers to completing short sales, and make the process more efficient for homeowners and servicers.”