A short sale lender is a type of real estate lender who is willing to work with clients to allow for what is known as a short sale of a property. A short sale is a situation in which the funds generated by the sale are not sufficient to pay off any mortgage currently held on the property. Lenders who are willing to work with property owners to manage a short sale typically do so because the amount of loss they stand to incur is less than they would realize if the owner were to default and the property had to go into foreclosure.
As part of the process, a short sale lender will review the current financial situation of the homeowner to determine if there is any way to manage the current debt in a manner that would avoid a default on the current mortgage. For example, if the owner has undergone a job loss or other financial setback that will take time to recover, the two parties may decide that a short sale would be in the interest of everyone concerned. For the lender, selling the property short, or for less than the current balance of the loan, would help to minimize losses. At the same time, the owner would be able to sell the property and retire a substantial portion of the debt, leaving a lower obligation to the lender that may or may not be written off. Even if the debt is not written off, the owner is able to minimize damage to his or her credit rating and possibly make arrangements to pay off the remaining balance due in a series of payments that are much less than the original mortgage payment.
If both parties feel that going with a short sale will minimize damage, the short sale lender will authorize the sale for the mortgaged property at the reduced price. Once the property is sold, the proceeds from the sale are delivered to the lender and applied to the outstanding balance. In some areas, the short sale lender may also be able to underwrite a new loan on the property with the new owners, a move that helps to further protect the bank or mortgage company from experiencing a significant loss. Should the previous owner also manage to retire any lingering balance from the old debt, the short sale lender could emerge from the situation with almost no losses at all.
It is important to note that not all types of lenders will approve and participate in a short sale situation. Even among those who will, there is usually specific criteria that must be met before the short sale lender will work with a client on this type of debt solution. When negotiating with a short sale lender, debtors should provide full and accurate disclosure regarding their financial situations. It is also important to be open to exploring options that could allow them to remain in possession of the home and eventually catching up any past due balances.