"A Short Sale is a type of pre-foreclosure sale in which the mortgagee (the lender) agrees to let the homeowner sell the property for less than the full amount due, and accepts the proceeds as payment in full.  The sale of property at a fair market price that's lower than the loan balance(s). A mortgagee approved, pre-foreclosure sale is a realty transaction which occurs when anticipated proceeds from a sale are insufficient to pay off all lien holders (usually the mortgagee) in full.  In advance the lien holder(s) agree in writing to facilitate the sale by accepting less than is contractually due, though it is under no legal obligation to do so."
                                                                     David M. Petrovich, Short Sales-An Ethical Approach

Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender and owner can avoid foreclosure which can be a lengthy process and expensive for the Bank (lender). The seller need not be in default before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered the property or owe more than the home is worth, so a discounted price may bring the price in line with market value, not below it.

A lender is not going to agree to a short sale unless the seller has no equity and is unable to repay the difference between the sales price and the existing loans. In these situations there are options for the homeowner.  A Loan Modification Service or Attorney may be able to negotiate a reasonable solution with the banks. Sellers who are unable to pay the balance of their debt or have no equity in their homes will need to provide a hardship letter to the lender. Sellers may also owe taxes on the amount of debt that is forgiven. We advise you speak with a CPA to understand the other tax implication of debt forgiveness.

A short sale can beneficial in many ways, and is a good alternative to foreclosure.  There are an increasing number of short sales in Monterey County.  Many of these homes are attractively priced and the sellers are motivated to avoid foreclosure.  Sellers and Buyers should be aware that this is a lengthy process which requires a lot of patience and may not end in a Bank approval of the offer, even if the offer is at or above list price.  Typically the Bank will not agree to a Short Sale where the offer is far below current market value.

Hire an Agent with Short Sale Experience

If you are a Seller it is critical that you are represented by an agent who thoroughly understands the default/foreclosure process and the specifics of presenting a Short Sale Package to the lender(s).  This is a complex process which should be handled only by agents who have educated themselves on Short Sales and have the resources to achieve success.

If you are a Buyer buying any property but particularly in buying a short sale or foreclosure you need an experienced agent who specializes in distressed properties.  These are not "normal" transactions.  They require a high level of expertise on the part of your agent.  It is important that your agent be conversant in the Bank's contracts and addendums and in the process of negotiating a short sale or REO purchase.  An agent with experience in short sales will help to expedite your transaction and protect your interests.

Residents of Monterey County and the surrounding areas can receive a FREE  Confidential 45 minute consultation which will cover many of the options available to the homeowner. This will include an explanation of loan modification (reducing your current mortgage payment) and Short Sales.