Throughout the foreclosure crisis, many distressed borrowers pursued a short sale of their property as a solution to the problem. Though there has been much written about short sales, many homeowners evaluating their options lack a fundamental understanding of this process.
In this series, we’ll de-mystify short sales and break it down to the basics of what, why, how and when a short sale should be done so you can better understand the process and decide whether short selling your home in Central Florida is right for you.
What is a short sale?
Essentially, a short sale is the sale of real estate for market value when that value is not enough to pay the outstanding mortgage debt on the property. The main difference between a short sale and a conventional sale of a home is the seller/borrower walks away from the closing table with no money. Usually, the seller pays no money at closing either. A seller contribution most commonly occurs when there is a second mortgage or equity line on the home and that lender requires more money to approve the short sale and release their lien so the deal may close. Often, the second lender will offer the borrower the option of bringing a lump sum cash contribution to the closing or take back an unsecured promissory note (without a mortgage on any property) for a larger amount than the lump sum option. The amount of either contribution is usually far less than the outstanding balance owed to that second lender and when the borrower accepts a note instead of a lump sum, it is often with zero interest.
When there is more than one mortgage on a property, the lender with the first priority lien is in control. The first lender determines how much it needs to collect at closing to approve the deal. This lender also decides how much it is willing to allow to trickle down from the purchase price to pay off “junior liens” such as a second mortgage, which often takes the form of a credit line.
The amount of information we have to offer you, the local homeowner, is abundant. Stay tuned for more in this series with answers to why, how and when to do a short sale.
About the author, Charles P. Castellon, Attorney and Counselor at Law: Charles is active in community, civic, and professional associations and has lectured and served as a panelist on real estate and other legal issues for organizations and associations throughout Florida including the Osceola County Association of Realtors, Orlando Regional Realtors Association, Central Florida Realty Investors, Polk County Real Estate Investors Association, National Association of Hispanic Real Estate Professionals, Osceola County Landlords Association, Score Real Estate School, and various other organizations throughout the state. To contact Charles e-mail him at firstname.lastname@example.org or find out more information at www.cpclaw.net.