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A short sale occurs when a property owner can no longer pay the mortgage and stops payment all together. Short sale properties are on the verge of foreclosure. This often happens when the value of the property has declined and the property can no longer be sold for the original purchase price. Generally, the property owner will put the property up for sale for less than the amount due on the mortgage in hopes to get an offer that they can submit to the bank. The bank will either accept or reject the offer. If the bank accepts the offer one of two things will occur:

1. The bank will go ahead and accept the offer for less than the mortgage and get a deficiency judgement against the property owner. With the deficiency judgement, the bank will attempt to collect the remaining amount of the original mortgage. Collection attempts may start right away or in a couple of years, but rest assured it will happen.

2. The bank will accept the offer and release the property owner from any future financial obligation for the deficiency. The release will effectively stop any collection attempts from the bank now and in the future. This is the ideal scenerio for the property owner.

If you are going through a short sale, be sure to read the closing documents thoroughly to verify that you are getting what you were told and there are no mistakes. This is very important and it goes for both the buyer and seller!

There are definitely many downsides to a short sale. It hurts your FICO score to have a settlement for less than the original amount. Short sales can also take a long time to close because of all the parties involved. You can expect a short sale to take 6 to 12 months or longer to close.

Buyers of a short sales can get a really good deal if they can put up with the lengthy bureaucratic process involved. Cash deals generally get more attention and close faster but banks have no problem with buyers using financing.

Default: Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.


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