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Short sales typically occur when a property is highly leveraged and the market loses value quickly… like now, especially in California.
A bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagor, which is most people that own highly leverage property in SOCAL.

The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.

A short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.

  Lenders have a department (typically called a loss mitigation department) which processes potential short sale transactions. Typically, Lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued or recorded with the locality where the property is located.

But these are not typical times. Banks are now well aware that the longer they wait, the more they stand to lose so many short sales are happening without a notice of default being filed.

Lenders have to approve of any buyer's or listing agent's commission in advance, a primary reason for non-brokered short sales with a specialist or facilitator to save on the margin. Many of these facilitators work with a private lending party for their financing, such as a partner or syndicate.

Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's approval. "Red tape" is very common in short sales, similar to REO and HUD properties, requiring potentially multiple levels of approvals and conditions. Junior liens, such as second mortgagees, HELOC lenders, and HOA (special assessment liens), may need to approve of the short sale.

Frequent objectors to short sales include tax lieners (income, estate or corporate franchise tax - as opposed to real property taxes, which have priority even unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the short sale.

While it is frequent if not common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance.  Across the country many major lenders are overwhelmed with foreclosures and short sales.

Brokers and Agents
99% of all real estate licensees are clueless when it comes to doing bank work-outs, short sales or short pays. Keep in mind that the real estate agent industry is about the only industry where one can get a license with almost no education… and it shows.

What to do if you owe more than your property is worth
You need to find a Real Estate Broker with many years of experience that specializes in bank work-outs. For Southern California please click here. You can email a specialist here.

Creative Solutions – Get Cash Now
There are companies that will lease option vacant short sale homes, providing the seller with income, while they negotiate the sale of the property with the lenders for their own account or on behalf of a buyer. Many sellers are mentally walking away form their troubled property when they could be earning thousand of dollars of rental income in the process. For Southern California, you can explore this option with Landco West.


Educational Resources


The HomeSalesNetwork is a free educational resource for consumers with lots of helpful articles. It is a Wiki, so anyone can write, edit and upload articles, comment about them and share them. Check it out. Another resource is How-To.com

Most Important
Find somebody to help you sell the property before you lose it in foreclosure which will hurt your credit for 7 years.