Short Sales
 
O’Kelley & Sorohan provides its clients with a full service short sale department.  Below is beneficial information related to the short sale process.
 
What is a Short Sale?
 
A “short sale” occurs when a lender agrees to accept less than the amount owed on a promissory note. It is most often utilized when a seller cannot pay the mortgage on their property. Often both lenders and sellers will consent to the short sale process, because it allows them to avoid foreclosure. This agreement, however, does not necessarily release the seller from the obligation to pay the remaining balance of the loan, known as the deficiency. The deficiency may be released by lender at their discretion.
 
What are the signs of a Short Sale?
 
Short sales are usually thought to be useful to both mortgage lenders and sellers in situations where: (i) the seller is behind or it is imminent that they are going to fall behind on their mortgage payments, (ii) the seller has a legitimate hardship, and/or (iii) the seller has little or no equity (generally 8% or less).
 
What constitutes a hardship?
 
A hardship is typically limited to job loss, decrease in income, increase in expenses, divorce, medical emergency, or death. Most lenders will consider a short sale if mortgage payments or property taxes are too much for a seller to pay.
 
What to expect after the Short Sale is agreed to by the lender?
 
Seller may be asked to sign a note for all or part of the difference between the remaining loan balance and the payoff amount. However, if the lender does not request a promissory note to be signed at closing and does not agree to release seller without recourse, the lender may sue the seller for the difference and attach this amount to other assets owned by seller. Also, it is important to understand that a completed short sale will have a negative affect on seller’s credit. Before the short sale is accepted and the transaction is complete, the seller should consult with a tax advisor regarding possible tax implications of conducting a short sale.
 
What is a deficiency?
 
A deficiency stems from a seller defaulting on a promissory note. A promissory note is a promise to pay. The note may provide for personal liability. Personal liability means the lender can pursue the seller’s assets, if the seller does not make payments. When a lender accepts a short sale it does not necessarily release the seller from the obligation to pay the remaining balance of the loan, known as the deficiency. The Seller may be asked to sign a note for all or part of the difference between the debt obligation and the payoff amount. However, if the lender does not request a promissory note to be signed at closing and does not agree to release seller without recourse the lender may sue for the difference and attach this amount to other assets owned by seller.
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