Credit Repair

How it Works

Foreclosure
A mortgage short sell, also known as a pre-foreclosure sell, takes place when a homeowner needs to get rid of his home because he is facing imminent foreclosure. If the foreclosure goes through, the homeowner will have a ruined credit rating and no home. By going through a short sell, the home owner can minimize the losses. Some homeowners in this situation will seek out potential buyers, while others are open to offers when they are approached by interested real estate investors. Potential mortgage short sell candidates can be found through the public records by watching for foreclosure notifications.

Agreement Between Buyer and Seller
Once the buyer and seller make a connection and decide to work together, the first step is to decide on a fair price for the home. Generally, the buyer will offer either to pay the remaining balance on the mortgage or propose a settlement amount for less than what is due on the mortgage. Most sellers do not receive any net profits from the sell of the property because all of the funds are used to pay off the debt. If the buyer and seller can agree on a price, they will enter into a contract which should be prepared by a knowledgeable real estate attorney for the protection of both parties.

Approval of Lending Company
Even though the buyer and seller enter this agreement, the lending company must approve the final deal. Generally, the buyer will handle the contact. A letter outlining the settlement offer is faxed or mail to the lender, preferably to the head of the loss mitigation department. The bank's representatives will review the offer and determine whether or not the amount offered to pay the mortgage balance is sufficient. The likelihood of success will be influenced by the real estate market, value of the property and mortgage balance. Be prepared not to receive an immediate response. Lending companies are notoriously slow in responding to these offers and sometimes will take up to five weeks before giving an answer. If the lending company does agree, be sure that they will not be going after the homeowner for the difference between the settlement accepted and the mortgage balance. This should be part of the final purchasing agreement.

Two Important Points
If you are the seller of the property, consult a tax attorney prior to entering the agreement. You may have to pay taxes on the amount of the mortgage that was forgiven due to the short sell. In some financial situations, that will not be the case. However, you want to know this information before deciding on a course of action. If you are the buyer of the property, you should investigate the property's title before finalizing any agreements. Many homes have multiple liens against them because of second and third mortgages. Paying off the primary mortgage on the property will not remove any of these additional liens.

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