There is such a thing as a real estate short sale. If your options are few financially speaking then this may be something worth trying. A short sale provides a means of avoiding bankruptcy and holding onto the credit you already have. Let us take a closer look at what a real estate short sale is all about.

In the world of real estate a short sale takes place when a homeowner who is in dire financial straits decides to sell his/her house for a lesser amount than is owing on the mortgage. The buyer of the property in this case is not the bank (because it is not a foreclosure) but is instead a third party. All of the proceeds from the sale go straight to the lender. The lender can then do one of two things. He can forgive the difference or he can decide to get a deficiency judgment against the borrower. A deficiency judgment means that the borrower is required to pay the lender all or a portion of the difference that exists between the price the home was sold for and the value of the mortgage to begin with. In some states throughout the U.S. the monetary difference is required by law to be forgiven in a short sale, while in others it is not.

For some people the thought of a short sale may seem as distressing as the thought of foreclosure on their home. Before you decide that a short sale is the only option you have available to you sit down with your lender and try to work out some sort of arrangement. Inquire about the possibility of loan modification or a revised payment plan. There might be an option that will make it possible to stay in your home and to help you find a way to begin to improve your set of circumstances.

If you have private mortgage insurance (PMI) then this might help you to stay put in the home you have come to love. Most homeowners who put less than 20 percent down on their homes when they buy them are required to buy private mortgage insurance. If the insurance company that you get your PMI through believes that you are in a position to improve in your financial situation then it is possible that they will advance funds to your lender in order to make your payments current. While you will still have to repay the advance at some point in time this will allow you to keep your home.

If none of these options is right for you then prepare yourself in advance for a short sale as it will involve a great deal of effort  and work on your part. A foreclosure and a short sale are the same in the fact that in both cases you lose your home. However with a foreclosure you walk way from your property with a damaged financial picture, such as having your credit destroyed and needing to file for bankruptcy. On the other hand, with a short sale you are in a better position financially. There is a lot of extra work involved in a short sale and it can be described as being labor intensive. In the long run though you will be really glad that you decided to go with a short sale instead of foreclosure.

Before you begin the short sale process think about whether your lender is likely to be willing to work with you on the short sale after he/she understands where you are coming from. Perspective is everything here. Be aware that the lender does not have to do the short sale with you. Instead it is up to his or her own discretion. The root of your financial problem should be something that has recently taken place such as unemployment, illness, or the end of your marriage. You want to get the lender on your side and want him/her to be empathetic to your situation. If the problem(s) you are having relate to something that you did not disclose when you first applied for the mortgage then your dishonesty will not bode well for your situation now. The lender is less likely to be willing to help a borrower who lied to him/her from the very start.

There are circumstances under which the lender may be prevented from wanting to be a part of the short sale of your home. For example, if you have not defaulted on your mortgage payments just yet then the lender may not be in a position to help you (even if you see the warning signs looming overhead). Bear in mind that the lender has to have the financial institution’s best interests at heart at all times. If the lender feels that more money will come from a foreclosure than a short sale then he or she may not permit you to take this route. There is yet another scenario under which the lender may not be willing to help you with a short sale of your property. If anyone else cosigned on the mortgage then the lender may wish to hold that individual responsible for making payments on the loan as opposed to having a short sale.

If you feel that you are a likely candidate for a short sale then talk to someone at your financial institution about the possibility of doing just that. Speaking to a customer service representative may provide you with some useful information but this person is not likely to have any degree of authority. You need someone with authority in these matters to assist you. What you need is to communicate with a decision-maker at the bank. If you decide to call instead of visit the bank in person then ask to be put in contact with the lender’s loss mitigation department. If you speak to one person in authority who is not a lot of help to you then try another day and see if you can locate a person who is receptive to your request and will give you the answers you need. If the lender at your bank is willing to consider the idea of a short sale then you are ready to take the next important step which is to create a short sale proposal and then find a buyer for your property.

You have now reached the point where you should talk with a lawyer, a real estate agent and a tax professional. Perhaps hiring these experts may seem like money you do not want to spend but handling a short sale transaction on your own can lead you into worse financial hot water than you ever thought possible. For this reason you need to enlist the services of these professionals. There may be instances where you can pay the service fees out of the proceeds that are made from the sale of your home.

When it comes to setting an asking price for your property  consider how much money you require to get yourself on better financial footing in your life. The aim is to sell the house for an amount that is as close to the value of the home loan as possible. However be aware that in a down market there is likely to be a shortfall. In some parts of the United States you will be expected to pay back all or a portion of the shortfall to the bank. However paying this back should still be simpler than what you owed for your mortgage to begin with.

You will need a selection of documents to prove to your lender that you are facing tremendous financial hardship. The more documents you have as evidence of this the better. Examples include bank statements, pay stubs, medical bills, a divorce decree, a termination notice from your last place of work and so on. From there you need to draw up the short sale proposal. Once the lender is provided with all of the details it is he or she who then must approve the short sale. The reason for this is because the lender will be the one receiving the proceeds from the short sale. As the homeowner it is your responsibility is to locate a buyer for your home.

Once a buyer has been found and all of the required paperwork has been filled out then the time has come to submit the offer from the buyer to your bank along with the proposal. Besides all of the relevant documentation of your difficult financial circumstances, the proposal you create should also include a letter of hardship that explains why you are unable to make your mortgage payments to the bank. You walk a fine line here as you want your reasons to be compelling to the bank but you also want to protect your own interests. This is where the attorney you hired to represent you can be of assistance. He or she is experienced in short sale transactions and can help you to navigate the problematic and uncertain waters that lie ahead.

Waiting to see if a short sale was approved can be a lot like holding your breath for a relatively lengthy period of time. Lender approval is required for a short sale which means that it can take longer than a regular house sale to be given the green light. Unfortunately sometimes despite all of your effort and hard work they fall through. Some buyers do not have the patience to play the waiting game and decide to purchase another property in the meantime. It is important that you realize that this possibility does exist.

It is important to note that since a short sale may take some time to be approved your credit score can be adversely affected dependent upon how many months you missed payments on your mortgage prior to the short sale. That is because the missed payments will show up as delinquent payments on your credit report. It is the bank that decides whether to report your defaulted payments to the credit bureau or not. If you made your bank aware of your financial difficulties before you fell behind in your mortgage payments then they are more likely to be generous with you as opposed to harsh.

Gather as much information as you can. Your Mortgage Company or lender will want to know the details of your circumstances. The more information you can provide a more helpful you’ll find your mortgage company or lender can be. There are many options to avoiding foreclosure and lenders have a sincere interest in helping you avoid the unfortunate circumstance of a foreclosure proceeding. There are numerous relevant terms that you should familiarize yourself with. Here is a partial list that can help you understand some of your foreclosure help options.

Forbearance: Your Mortgage Company or lender may offer a temporary reduction or suspension of your mortgage payments while you get back on your feet. Taking advantage of this option works well if you are not too far behind in your payments. Hence the reason to contact your lender as soon as you recognize there is a problem. Forbearance is often combined with a reinstatement or a repayment plan to pay off the missed or reduced mortgage payments.

Repayment Plan: with a repayment plan you make an agreement that gives you a fixed amount of time to repay the amount you are behind by combining a portion of what is past due with your regular monthly payment. Obviously with a repayment plan to document how you will be able to make the payments. Again been able to document your circumstances is paramount to using a repayment plan as a foreclosure help option. At the end of the repayment period you have gradually paid back the amount of your mortgage that was delinquent.

Reinstatement: Your mortgage company may agree to let you pay the total amount you are behind, in a lump sum payment and by a specific date. For example, your lender may accept a lump payment a year from a signed agreement. This is often combined with forbearance when you can show that funds from a bonus, tax refund, or other source will become available at a specific time in the future. You may be asked to pay late fees with a reinstatement program.

Loan modification: loan modifications are becoming very popular with mortgage companies these days. The federal government is prompting mortgage companies to make the loan modifications whenever possible. This is all part of the Government foreclosure help program. This is a written agreement between you and your mortgage company that permanently changes one or more of the original terms of your note to make the payments more affordable.

You may decide with your mortgage company that you ultimately cannot afford to keep your house. There are still alternatives to help you avoid a pending foreclosure. Some of the alternatives are listed below.

Short Payoff: If you can sell your house but the sale proceeds are less than the total amount you owe on your mortgage, your mortgage company may agree to a short payoff and write off the portion of your mortgage that exceeds the net proceeds from the sale.

Assumption: An assumption permits a qualified buyer to take over your mortgage debt and make the mortgage payments, even if the mortgage is non-assumable. As a result, you may be able to sell your property and avoid foreclosure.
Refinancing: While refinancing is not necessarily a good option when facing foreclosure and can sometimes even be a predatory practice, there are instances where it may help. Talk to your lender to see if refinancing is an option for you.

Deed-in-lieu of foreclosure: A deed-in-lieu of foreclosure is a cancellation of your mortgage if you voluntarily transfer title of your property to your mortgage company. Usually you must try to sell your home for its fair market value for at least 90 days before a mortgage company will consider this option. A deed-in-lieu of foreclosure may not be an option if there are other liens on the property, such as second mortgages, judgments from creditors, or tax liens.

Do what ever you can to avoid foreclosure prevention or loss mitigation companies. If you fall behind in your mortgage payments, many for-profit firms can contact you promising to assist you avoid foreclosure. Some could even appear to be affiliated together with your lender. Several also list their services on the web and ask that you just fill out a referral type online. It is best to avoid dealing with these companies. Most will charge you a hefty fee upfront for info that your lender can give to you for free. You’ll be able to obtain the same workout plan or a better plan free by contacting your lender. It is better to use Your money to pay the mortgage instead.

Many people are contacted by foreclosure recovery companies. Do not fall victim to a foreclosure recovery scam. If any business or individual offers to help you stop foreclosure immediately by signing an agreement authorizing them to act on your behalf or to set up financing for you, do not sign without consulting a professional. This may be a trick to get you to sign over title to your home. You are then vulnerable to losing your home and all of your equity in your home to the so called “rescuer.”

Carefully take a look at your finances. Can you chop spending on optional expenses, delay payments on credit cards or other unsecured debt until you’ve got paid your mortgage? Do you have assets that you may sell to help reinstate your loan? Can anyone in the household get a second job to help with income? These efforts to manage your finances may facilitate you find income to apply to your outstanding payments and will demonstrate to your lender that you’re willing to work on your finances and make sacrifices in order to keep your home.