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Short Sale

When a homeowner either falls behind on their mortgage or can no longer afford their home due to some form of hardship or loss, they may qualify for a short sale.

What is a Short Sale & When to Consider One?

A short sale is when a homeowner who is either behind on their mortgage or can no longer afford their home due to some form of hardship or loss. A homeowner can request a short sale from their bank, basically asking the bank for permission to sell their home for less than what they owe the bank to avoid foreclosure when foreclosure is imminent, and when the remaining balance owed to the bank is greater than that of what their home would yield in an open market due to the decline of home values in their neighborhood or the market in a whole. In either of these cases a homeowner must prove a hardship and submit a document of financial hardship.

Benefits of a Short Sale to a Homeowner

If a homeowner is facing a short sale, one of the major benefits is a delay of foreclosure. A short sale approval or denial can take up to 4-12 months to receive, affording a homeowner time to reflect and to gain control of any affairs in their life that they hold the power to do so, while coming to grips with the direction they are heading in, and to better accept the outcome of a short sale be it good or bad. Nobody claims short sale is the ideal remedy for a home seller that has experienced a financial loss and owns a house where the debt equals the valuation of the property, but it may be the best choice. 

Advantages of a Short Sale

1. Credit Score Advantages

A short sale is more desirable from a personal credit score point of view, particularly when measured against a foreclosure. It can preserve a credit rating in a hardship situation, leaving a seller better prepared to purchase another home down the road.

Unlike a foreclosure that causes a major drop in the credit score while at the same time effecting the seller ability to purchase a home for the next 3-5 years.

2. Emotional Advantages

In certain ways, home mortgages are the largest financial occurrence in a person’s life, at least until retirement. The homeowner can prevent the “worst case situation” of bankruptcy and or foreclosure and can confidently claim that they sold their home and went on with their life.

Disadvantages of Short Sales to a Homeowner

Here are a few disadvantages of a short sale:

  • No Cash-out

In a short sale the seller can not gain any profit on the sale of the house-the bank or mortgage lender receives all the profits of the transaction.

  • 3 Party Lenders Discretion

In most cases a homeowner cannot liquidate their home without a short sale approval from their bank.

Liability Release for a California Short Sale

There are negative and positive results of the passage of California SB 458 in July 2011. In some instances, the limitations made certain second lenders more hesitant to accept a short sale. On the other hand, the legislation forbids a bank from requiring that the seller contribute. The contribution acts as a prerequisite for the acceptance of a short sale.

SB 458 amends the California Civil Code by incorporating paragraph i.e. California Civil Code 580e specifies that a corporation may discharge a seller from personal liability if the corporation accepts a short sale. It doesn’t matter if:

  • Home is a personal house or rental.
  • The loan is hard money or property to buy money.  
  • The loan is in the first, second, or third place.

Any lender who grants a short sale for 1 to 4 units in California shall discharge the seller for damages and shall not be responsible for a deficiency judgment. It is also prudent to receive a  letter of approval for sale comprising verbiage that waives the deficiency or releases the seller.

For more information please complete the form below and one of our Short Sale specialist will reach out to you shortly