What is a Short Sale and HOW will it effect my purchase

Deed in Lieu vs. Short Sale

Both Short Sales and Deeds in Lieu can help homeowners avoid Foreclosure. Learn the difference between the two options.


What is a Short Sale?

A short sale is the sale of real property which falls short of the amount due on that property’s mortgage(s). Since it means that the lender(s) will discount their debt(s) and take a loss on their investment, the sale must be approved by the lender(s) on all mortgages and liens on the property. A short sale is generally approved only as an alternative to foreclosure. The lender on your first mortgage has the first right to the proceeds from the sale because they have the first right to foreclose on the property in case of default. If you have other mortgages or liens on that property, you must be able to get those lenders to release their lien on the title to your property before the original lender can accept the deed. Just like in other real estate transactions, the title must be clear when it is transferred through a short sale. You must agree to work together with your original lender, real estate agents and brokers, appraisers, title companies, mortgage insurance companies, and all other lienholders in order to avoid foreclosure through a short sale. When your first mortgage lender agrees to accept a short sale under the Home Affordable Foreclosure Alternatives (HAFA), they must agree to give up their right to ask you to repay any part of that debt, whether by cash, a promissory note, or a default judgment in court. The other lien-holders may require cash, a promissory note, or a combination of both before they will agree to release their lien. Be prepared to negotiate terms with them.


What is a Deed in Lieu of Foreclosure?

When you agree to a deed in lieu of foreclosure (DIL), you are agreeing to give up the deed to the property (ownership) instead of going through the foreclosure process. The agreement is that you transfer ownership back to your original lender in exchange for a “paid in full” status on that debt. A DIL can only be transferred to the lender on your first mortgage because they have the first right to foreclose on the property in case of default. If you have other mortgages or liens on that property, you must be able to get those lenders to release their lien on the title to your property before the original lender can accept the deed. Just like in other real estate transactions, the title must be clear when it is transferred through a DIL. Most of the time, your original lender will require that you make a good-faith attempt to sell your property through a short sale before they will agree to a DIL. They do make exceptions under certain circumstances. When your first mortgage lender agrees to accept a DIL under HAFA, they must agree to give up their right to ask you to repay any part of that debt, whether by cash, a promissory note, or a default judgment in court. The other lienholders may require cash, a promissory note, or a combination of both before they will agree to release their lien. Be prepared to negotiate terms with them.

Your options change daily. ­Let's discuss what is available today. ­


Are you wondering what the waiting time is­ following ­a Short Sale or Foreclosure?­­

CLICK HERE­ ­to download the Waiting Period Matrix from GuaranteedRate
Kathryn Hoffman

Kathryn Hoffman

Broker Associate
Contact Me
Contact Me