A “short sale” exists when a seller wants to sell his property but will not realize sufficient proceeds to pay the mortgages which exist on the property. It was historically difficult to convince lenders to allow such a sale to proceed. However, in the current economic climate we are seeing less resistance on the part of lenders to consider such an action. With the proper preparation and documentation, it is now possible to convince a lender, when necessary, to allow the sale to proceed without paying off the entire loan and without requiring the seller to sign a note for any additional sums left outstanding after the closing. The lender will issue a letter indicating it will satisfy the mortgage of record upon receipt of a dollar amount which the lender specifies.
Your client must discover from the lender what actions the lender will take concerning his credit and also what tax consequences, if any, there will be as a result of the forgiveness of a part of the mortgage debt.
If you represent a seller in such a situation or you are a buyer considering such a purchase, be aware that it takes approximately two to three months for the approval by most lenders so start the process early and allow enough time when you select a closing date on your agreement of sale.
Once you have an agreement of sale the seller should make a request of his lender or lenders with the following documentation:
We utilize a Short Sale Addendum to Agreement of Sale and a separate Notification to Buyer of a Potential Short Sale.