A short sale is when the lender(s) of record on your home agree to discount their payoff to accommodate a sale, when:

 

> The borrower has experienced a hardship

 

- A monetary hardship, such as loss of job

- A marital hardships, such as separation or divorce

- A medical hardship, such as illness or injury

 

> The value is proven to be less than the amount needed to pay off all loans, encumbrances, and real estate selling costs.

 

> The loan is delinquent or in default (usually 2 - 3 missed payments, but many banks may consider a short sale before payments are missed)

 

For a definitive article on the short sale process from Mortgage Daily News click here. Another good article from Realty Times may be found here. Both articles paint realistic pictures of the process and the potential benefits and costs and impact of taking this route.

 

How does a short sale benefit the homeowner?

 

> The seller can avoid foreclosure. Recent reports state that if a buyer misses 2-5 payments, their credit score will be affected. Likewise, if the borrower experiences a foreclosure, their credit score will be affected. Keep in mind that a credit score and a credit report are two different things. You may find more information at www.fico.com. I am not a financial or credit advisor, so for more to read on this topic click here for a PDF file for a booklet on Understanding your FICO score or click here for  a PDF file for a booklet titled Your Credit Scores. There are differences in how a short sale might impact your credit vs. a foreclosure; but, make no mistake, both will have an impact. For a more definitive article on that topic, click here.

 

> Assuming the seller is already not making payments, they can continue to live in the home and not make payments during the short sale process.

 

>Most sellers feel it is “the right thing to do”, when in default. Walking away from the house is irresponsible and unfair to the lender and to your neighbors.

 

How do Lenders Benefit from a Short Sale?

 

> Not having another bad debt on the books. Most investors require their lenders not to exceed 3% of bad debt on the books. That is what caused the current crisis within the lending industry - too much bad debt.

 

> Not having to complete the expensive foreclosure process, including all of the legal fees and procedural duties.

 

> Not having to evict occupants or pay for their cooperation (cash for keys)

 

> Not having to rehab the property if the prior owners or vandals cause damage. Irate homeowners or thieves often strip all of the appliances, lighting fixtures and plumbing. In our area there has been a rash of break-ins by thieves who strip out all of the copper in the house to sell on the scrap market,  

 

> Not having to later sell the property for no more than the proposed short sale would generate, or even less when the market continues to decline. We have experienced a 1% per month decline in the local market for the last 18 months.

 

Where does this fit in the normal foreclosure process in Michigan?

 

>A short sale stops the normal foreclosure process, which in Michigan can take from 6 to 9 months. Click here for a short tutorial on Michigan’s foreclosure process.

 

What about this thing that I hear about - a deed in lieu of foreclosure?  

 

> Let me relate that to something else that you hear about on the news. When you see someone on the evening news pleading “no contest” to a civil or criminal charge, they are not admitting guilt, but they are accepting the penalty (usually a plea bargain of some sort) for the crime. Well a Deed in Lieu of Foreclosure is somewhat the same thing. The owner is saying, “Here are the keys, take the house; you’re going to get it anyway.” It’s still going to show up as a foreclosure on your credit report, it’s just that you’re saying that you’re not going to fight it or to prolong the process by living in the house through the redemption period. It’s an “I give up” strategy.

 

Here are some other articles on this option -

 

HUD FAQ Article on Deed in Lieu

 

Deed in Lieu vs Short Sale - From Mortgage Relief Formula Web site

 

Avoiding Foreclosure - Brochure from Michigan Attorney General Mike Cox