What is a Short Sale?
Local attorneys and title closers are telling me that they are seeing more short sales in Westchester as a whole. Stephen Brotmann of The Brotmann Law Group in White Plains recently came to our office to explain the process in plain language.
According to Steve, ” A short sale is a sale of residential real estate in which the proceeds from the sale are less than balances owed on a loan or loans secured by mortgages on the property sold.
In a short sale, the lender (usually a mortgage bank) agrees to reduce the loan balance due to the borrowers financial hardship and in consideration of the value of the property. Short sale negotiations are done through communication with a bank’s loss mitigation or workout department. The home owner/debtor proposes to sell the mortgaged property for less than the outstanding balance of the loan, and turn over the net proceeds of the sale to the lender in full satisfaction of the debt. The lender has the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower’s financial situation.
In a short sale, the lender (usually a mortgage bank) agrees to reduce the loan balance due to the borrowers financial hardship and in consideration of the value of the property. Short sale negotiations are done through communication with a bank’s loss mitigation or workout department. The home owner/debtor proposes to sell the mortgaged property for less than the outstanding balance of the loan, and turn over the net proceeds of the sale to the lender in full satisfaction of the debt. The lender has the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower’s financial situation.
Most often, a short sale is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there are carrying costs that are associated with a foreclosure. A bank will typically determine the amount of equity (or lack of), by determining the probable selling price through a valuation of an appraisal. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.
It is important to note that all related factors must be presented to the lenders in order to accomplish a short sale. Specifically, the lender will look at the entire financial status of the homeowner/borrower to determine if there are additional assets which could be accessed to pay the entire debt owed to the bank. Also, most lenders will only consider and consent to a short sale when a contract for sale at a specific price is presented, thus ensuring that if the lender consents the property will close promptly. Lenders will also need to be presented a “net proceeds” figure showing the actual amount the bank will receive as a result of the sale. The net proceeds amount should detail all of the expenses associated with the transaction including realtor fees, transfer taxes, legal fees, and etc. Usually a proposed closing statement is presented to the lender for their consideration and approval.”
It is important to note that all related factors must be presented to the lenders in order to accomplish a short sale. Specifically, the lender will look at the entire financial status of the homeowner/borrower to determine if there are additional assets which could be accessed to pay the entire debt owed to the bank. Also, most lenders will only consider and consent to a short sale when a contract for sale at a specific price is presented, thus ensuring that if the lender consents the property will close promptly. Lenders will also need to be presented a “net proceeds” figure showing the actual amount the bank will receive as a result of the sale. The net proceeds amount should detail all of the expenses associated with the transaction including realtor fees, transfer taxes, legal fees, and etc. Usually a proposed closing statement is presented to the lender for their consideration and approval.”
For further information on short sales or legal real estate matters in general, you may contact Stephen Brotmann via email or at 914-694-6200, extension 304.
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