Short sale foreclosure involves property that has been returned to the bank because the mortgagor was unable to maintain their loan payments. The lender takes possession of the real estate and is responsible for its care until it is sold.Short sale foreclosure also refers to a type of transaction where lenders allow borrowers to sell their home for less than is owed on the mortgage note. This option is usually only offered when all other attempts to prevent foreclosure have been exercised.

Currently, banks are holding a high number of non-performing loans. The amount of money received from the Federal Treasury is based on lenders’ performance. If bank customers are not paying, the Feds can reduce credit limits or cease lending altogether. By law, banks are only allowed to hold a certain number of foreclosed properties. With the constant influx of mortgage defaults, many lenders are rapidly approaching their quota. Short sales give banks the opportunity to liquidate real estate inventory.

Short selling a property can be a saving grace for borrowers unable to refinance or obtain a loan modification. The process typically takes between four and six months to complete, but allows debtors to walk away without owing additional funds.An exception is when lenders issue deficiency judgments. Some mortgage financiers hold borrowers responsible for the difference between the sale price and loan balance. When two or more mortgages are involved, this amount can be staggering.

Multiple financial consequences occur when deficiency judgments are issues. This black mark remains on credit reports until the debt is repaid. Borrowers may need to engage in months of phone calls and aggravation if the court does not report the judgment paid.Short sales do affect credit scores. However, they are not as detrimental as foreclosure or bankruptcy. The latter remain on credit reports for ten years, whereas short sales are reflected for seven years. If borrowers are able to get back on track financially, they can apply for another mortgage loan within two years.

Each lender handles short sales according to their established corporate policy. However, borrowers can expect to provide mountains of financial documentation to prove they are financially insolvent. After all, if the bank is going to accept a loss on the property they want proof the borrower doesn’t own assets which could be used to satisfy the debt. Most mortgage lenders require borrowers to have a qualified buyer lined up before discussing the concept of short selling. Others grant the homeowner time to list their real estate through a realtor. This window of opportunity is typically two to three months. Otherwise, the bank will initiate foreclosure proceedings.

A tip for locating a buyer for short sale foreclosure real estate is to seek out private investors or investment groups. Short sale properties are attractive to investors because they are usually sold below market value. Selling the property to a real estate investor eliminates the need for a realtor and improves the borrower’s chance of obtaining short sale approval. Both borrowers and banks save time and money when selling to investors. Banks can expedite the transaction because there is no need to locate a buyer. Borrowers don’t have to spend countless hours worrying how they will find a buyer. Investors benefit because they purchase the property at a reduced price. When properly constructed short sales offer a win-win to all parties involved.