WHAT IS A SHORT SALE OR DEED IN LIEU OF FORECLOSURE

Technically a short sale is any transfer of the property for less then the value paid. But in the current mortgage context it is a sale for less then the actual amount owed on the mortgage lien or liens. So for example if there were a home with a $200,000 mortgage and it was sold for $100,000 that would be a short sale. Normally the lender  agrees to assume part or all of the difference between the sale price and the higher value of the loan. In other words as the Realtors say the lender eats the loan. Obviously in the current legal realities the mortgage bank must consent there is no way to compel a short sale. Often there is a good practical reason for the Bank to agree the average first mortgage receives only 40% of the amount due in the average foreclosure sale due to expenses, legal fees and commission paid. However, since about 1990 the majority of Banks operating in the mortgage business do so as servicing agents, not actual lenders, thereby insulating themselves from the potential loss. Therefore they do not care if the property is foreclosed because an undisclosed third party bears any loss. More and more this third party is the American Tax Payer through government bail outs.

A “deed in lieu” is a legal term for the surrender of legal title in the property to the party holding the mortgage. This releases the homeowner for and responsibility for the property or to pay the loan, but also loses him, her, or them the possession of the house. Normally banks only consider this if there are no other lenders or third parties involved. In other words no second mortgages or judgements filed.  The value to the lender is they save the cost of the foreclosure. Again the lender has no incentive if the mortgage is actually held by a third party.

Doing either a short sale or a deed in lieu takes a certain amount of skill so obtaining professional help is very beneficial, but as always be wary of help that comes with an up front price or a promise too good to be true. Check out anyone offering assistance and ask for references. For more information contact our bankruptcy law firm.