In today’s tumultuous real estate environment, with decreasing property values, many homeowners are finding themselves owing more on their mortgage than their home is worth. Further more they were giving a mortgage that was beyond their means and now have come to the realization that they can not afford the monthly payments. They can’t sell the house because they can’t get enough for it to payoff the mortgage. Bankruptcy is looming and appears to be the only option. Or is it? Enter the mortgage short sale.

A mortgage short sale, or short pay as it is sometimes called, occurs when the lender agrees to accept less than the full balance of the mortgage to consider it paid off.

It is in the financial institutions best interest to accept a short pay mortgage if it is likely they will end up in a foreclosure situation. Banks do not want to own real estate. It is not their strength and can end up being a very costly proposition for them. The property needs to be maintained or repairs need to be done before it can be resold. And then they are not going to get enough for it to recover the lost mortgage, because you already determined that the loan balance exceeded the homes fair market value. So they are going to end up taking a bath on it regardless. It is in their best interest to minimize their losses and move on.

The borrower needs to demonstrate to their lender that they really are on the brink of bankruptcy. They need to illustrate that the home can not be sold for enough to pay off the mortgage and that accepting a mortgage short sale is going to save the bank more grief and expense later on. This is often best done by writing a letter and attaching any applicable supporting documentation.

This will not work all time. If there is not a big discrepancy between the amount owing and the appraised value then the mortgage company likely won’t go for it. But these deals are done all the time and being aware that a mortgage short sale is a consideration, can possibly save you from the anxiety of a foreclosure and keep your FICO score in tact.

Related posts:

  1. Negotiate a Mortgage Short Sale Instead of Foreclosure
  2. Stop Foreclosure Now; What You Need To Know