An owner "is short" on his property when the amount he owes on his mortgage, combined with commission and closing costs, is higher than the current market value of the property.
A "short sale" occurs when a negotiation is entered into with the property owner's mortgage company (or companies) to accept less than the full balance of the loan(s) at closing.
A short sale is the preferred solution for many home owners facing foreclosure. That's because among other things a foreclosure can have a large and lasting impact on a person's credit score, credit history, and job status. More on this topic will be coming soon.
In order to qualify for a short sale, a home owner must be able to demonstrate one or more of the following:
- financial hardship
- negative cash flow where monthly expenses exceed monthly income, or
- evidence of pending loss and insolvency
The most common justification for a short sale is an increase in monthly mortgage payments. We'll cover this and other acceptable forms of financial hardship in our next post.
Dan Miller, Keller Williams Realty and DaneCountyMarket.com
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