Short Sale Basics

1.  What is a "Short Sale?"

A "short sale" typically occurs when an owner has no equity in the property under any reasonable measurement of value.  Secured creditors are asked to voluntarily accept "short" payoffs in full satisfaction of their liens in order to facilitate a sale of the property at a price insufficient to pay all liens in full.  Unlike a foreclosure, there is no legal leverage requiring secured creditors to release their liens upon the sale regardless of the amount of recovery for their liens, so cooperation and consent of all secured creditors is necessary.

2.  Advantages of a "Short Sale"

In theory, unlike a foreclosure property, the property is marketed privately at its best potential value in the marketplace.  Also, while a typical short sale may take longer than a conventional third party sale to accomplish, the timeline is usually much shorter than current foreclosure actions are taking. 

3.  Title Company Procedure is the Key to a Successful "Short Sale"

Prior to closing, the title company works with the secured creditors, both mortgage holders and lien holders, to insure that all items will be released from the property upon completion of the short sale closing.  This function typically requires much more scrutiny by the title company.  What may normally be an administrative function in obtaining a full payoff figure from a lender graduates to a more legally and conditional contractual agreement by the lender to even consent to a compromised payment.  Involuntary lien holders (judgments, mechanics', tax liens, etc.), who are never pre-disposed to be cooperative in obtaining full payoffs and releases anyway, may be even more recalcitrant in their cooperation with a short sale.  The title company must exercise extreme diligence in obtaining unambiguous and clear releases of liens prior to closing because in most cases little to no consideration is being received in exchange for such releases.  Upon the agreement of all secured creditors in writing to the title company, the closing can take place.