A short sale is a process used to sell a home for less than the amount owed on the current mortgage. The homeowner asks the bank to accept the proceeds of the sale and waive the remaining balance owed on the mortgage. Why would the bank accept such an offer? Depending on the circumstances, it may be more cost-effective for the bank than its other remedy against the borrower—foreclosure.
Foreclosure vs. Short Sales
If the borrower misses a mortgage payment, the lender has the right to begin foreclosure proceedings immediately in Arizona. Typically, the lender will give the borrower a chance to cure the default, and may even consider modifying the mortgage. The borrower may be given extra time to make up the missed payments or have the delinquent payments added to the end of the mortgage payment period, along with other options. However, if no agreement can be reached or the borrower misses payments after the modification, foreclosure will likely be initiated.
Foreclosure requires the lender to pay legal fees, other costs, and then deal with reselling the home. During this time, the lender is not making any money on the home. This is why a short sale can be a more attractive option if the bank believes that the borrower really cannot pay the mortgage payments. Typically, this occurs when a borrower loses a job, has a serious medical problem, or some other situation causes financial difficulties.
As a borrower, the short sale process obviously allows you to eliminate your mortgage without being responsible for any deficiency after the short sale. If you cannot work out a loan modification and don’t want to file for bankruptcy to stop the foreclosure process, you may be faced with either letting the bank foreclose on your home or negotiating a short sale. Which option is preferable will depend on many factors, including whether you are protected from deficiency judgment if your home is foreclosed upon.
If there is more than one mortgage on the home, all lenders will need to agree to the short sale. You will need to get a waiver from all lenders stating that they will not go after you for any deficiency after selling the home in a short sale.
Chernoff Law handles real estate litigation matters throughout Arizona. Contact us by calling 480-719-7307 to discuss your real estate matters.