Understanding Short Sales: A Guide for Pensacola Homeowners Facing Financial Hardship

It can be incredibly stressful when you find yourself in a position where you need to sell your home but discover that it’s worth less than what you owe on your mortgage. To complicate matters, suppose there’s also a mechanic’s lien on your property, which happens when a contractor hasn’t been fully paid and thus places a legal claim on your home. This situation might seem overwhelming, but one potential solution is what’s known as a “short sale,” or pre-foreclosure sale. Here’s a straightforward explanation to help make sense of this process.

What is a Short Sale?

A short sale occurs when a homeowner sells their house for an amount that is less than the total due on the mortgage. This type of sale is labeled “short” because the proceeds from selling the home fall short of covering the full balance owed to the bank. Conducting a short sale requires the lender’s approval because the lender is agreeing to accept less than the total debt owed.

Why Consider a Short Sale?

Choosing a short sale can be a strategic decision for several reasons:

1. Avoid Foreclosure: Foreclosure is a legal process in which a homeowner loses their property due to failure to pay the mortgage. Foreclosures can be damaging to your credit score and personal reputation. A short sale provides an alternative that can be less harmful to your financial future.

2. Prevent a Deficiency Judgment: In some cases, even after a foreclosure, homeowners can still be held liable if the sale of the home doesn’t cover the full amount of the mortgage. This is known as a deficiency judgment. With a short sale, it’s sometimes possible to negotiate with the lender to forgive this remaining debt.

3. Control Over the Sale Process: Unlike in foreclosure, where homeowners are often suddenly evicted, a short sale can provide more dignity and control over the process. Homeowners can have a say in the sale and plan their move, which can ease the transition and reduce stress.

Dealing with a Mechanic’s Lien

A mechanic’s lien adds another layer of complexity to selling a home. Here are steps you can take to address this issue in a short sale:

1. Be upfront about the mechanic’s lien when discussing the sale with your real estate. Transparency is crucial for a smooth process. 

2. It is possible to have the bank holding your mortgage to either pay the entire amount or partial amount of the mechanic’s lien

3. Bank Approval: The presence of a lien can affect the bank’s decision on a short sale. The bank will consider the lien when reviewing the proposed sale price and terms.

4. The closing agent will allocate the funds to pay mechanic’s lien at closing.  This payment satisfaction gets recorded at the clerk of courts office by the closing agent.

Steps to Initiate a Short Sale

1. Speak with a real estate agent experienced in short sales.  You and your agent can develop a strategy to successfully navigate through the process.

2. Contact Your Lender: Tell them you are going to sell your home.  In a short sale you’ll need to provide your lender with evidence of your financial hardship.  Your real estate agent can provide a summary of market conditions affecting your property’s value.

3. Market the Property: You and your agent can list the property. The price should be appealing enough to attract buyers but also realistic in terms of current market values and the bank’s expectations.  How far you in foreclosure are you will impact your list price.

4. Bank Review: After receiving a contract, your agent will submit it to your lender for approval. This can be a lengthy process, requiring patience and persistence.

5. Close the Sale: When the lender approves the contract, you can proceed to closing. All parties, including the holder of the mechanic’s lien, must agree to the terms.

Conclusion

While a short sale can be a complex and challenging process, it often offers a more favorable outcome compared to foreclosure. It allows homeowners facing financial difficulties a chance to address their debts responsibly while minimizing the impact on their financial future. With the right guidance and understanding, navigating a short sale can be a manageable path through a tough situation.