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Two Short Sale Options

The preferred short sale option is the one that allows the borrower to walk away free and clearBanks, credit unions and other lenders can offer two different shortsale options. Homeowners considering short sales should find out which option is being offered by the lender before deciding to go this route.

Option #1 – Deficiency Judgment

With this short sale option, homeowners are still liable for the amount of money still owed after the short sale transaction takes place. For example, if the amount still owed on the mortgage was $150,000 and the short sale purchase takes place for only $120,000, then the borrower will still be liable to pay the lender the $30,000 difference between the purchase price and the amount owed on the loan.

Until this amount is paid to the lender, the deficiency judgment will be noted on the borrower’s credit report. Since the balance still owed usually is thousands of dollars, it can take years to pay off this amount of money and the negative effects of the deficiency judgment on the borrower’s credit report can be long lasting with devastating financial consequences.

Option #2 – Payment in Full without Pursuit of Deficiency Judgment

This option is the more popular choice and the obvious hope of most homeowners interested in a shortsale. Borrowers are not required to pay the difference between the amount paid for the sale and the total amount still owed. Once the property is sold with the approval of the lender, the borrower is free and clear of any financial obligations once the process has been completed.

When considering short sales, it is essential for borrowers to contact their lender as quickly as possible to receive information on the options available from the lender. Once this information is provided, homeowners should look it over carefully, weighing their options to choose an option that will best suit their unique financial situation.

Next: What is an approved short sale?

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