A ‘Short Sale’ is what the real estate world commonly calls the sale of a property for less than what is owed on any liens, mortgages or other encumbrances.That means that you are able to sell the property for less than what you owe. You owe $150,000 and are able to sell the house for $100,000.
After the real estate collapse of 2008, property values were often decreased by 40%. I have seen cases where people owned homes appraised for $1.2 million in 2007 that were worth $700,000 in 2013. Obviously, the financial damage with a drop in your property value can lead to a homeowner owing far more than a property is worth.
Additionally, if you are not making payments on your mortgage, those payments become ‘arrears’. If you owe $1,000 per month on your mortgage and are 3 months behind, the bank will say that you are 3 payments in arrears for $3,000. You owe $3,000. Additionally, other fees and attorney fees can be added to these ‘arrears’ to make your mortgage balance increase over time. As you can see, if you have not made a mortgage payment in several months (sometimes years), the figure required to make your account current could be substantial. Maybe you had equity in your home at some point, but are under water after considering the arrears.
Both of the above situations could lead to you owing more on your house than it is worth. Under certain conditions and after following certain procedures, you can request that the bank accept an offer by a third party to purchase your house for less than what you owe: that is the beauty of a short sale. Many other considerations must be weighed, including tax consequences. Please contact me for more information.