Foreclosure Insider

Introduction to Short Sales

By: FNJF Editor
Article posted: May 22, 2009

Foreclosures in New Jersey are appearing in record numbers and desperate sellers are turning to short sales as a way to avoid foreclosures. So, what are short sales? In a short sale, the seller arranges with their mortgage lender to accept a price that’s less than the amount they owe on the home. Commonly, it is a second mortgage holder that’s forced to accept a minuscule settlement. In any case, as part of this arrangement, the lender typically agrees to forgive the rest of the loan.

Short sales allow the homeowner to avoid foreclosure action and the buyer has a great opportunity to pick up property at a discount. Although the lender may appear to be the biggest loser, it is beneficial for them to avoid taking on the burden of unloading the property.

Everybody seems to be a winner, right? Well, not exactly. The sellers need to know that a short sale may damage their credit, though probably not as much as a foreclosure. Also, lenders generally will only agree to a short sale if the seller is many payments behind and has received a default notice. Buyers may get a great property at a discount, but they also will need to go through some extra paperwork too. Not to mention, they also need to be prepared to roll up their sleeves if that new property needs fixing up.