What is a mortgage default?
A mortgage is considered to be in default when one or more monthly payments have been missed.

What solutions are available if I am in default on my mortgage payments?
You may qualify for a broad range of help. Some solutions are:
   - Short Sale/Payoff 
   - Forbearance Agreement 
   - Loan Modification
   - Deed in Lieu 

What is the definition of a Short Sale/Payoff? 
A short sale is an "arrangement" between the current owner of a home and the bank that lent them the money to buy their home to accept an offer for less than the total amount owed to pay off the home. The "deficiency" is the difference between the amount owed and what the bank collects at the short sale.

A bank owned (foreclosed) house is not a short sale. A seller deciding to lower their price and take less profit is not a short sale. An old lady that owns her home free and clear, selling a $150k home for $75k, IS NOT A SHORT SALE. For it to be a Short Sale, someone must be getting "shorted." Either the seller, or the bank. I will explain how both of those happen in more detail presently.

Another important definition of a short sale is how it differs from foreclosure. In foreclosure, the homeowner falls way behind on their payments and the bank repossesses the house and sells it. In almost all cases, THE BANK PURSUES THE HOMEOWNER FOR THE DEFICIENCY!!! No one seems to know or believe this, but just ask someone who has gone through foreclosure, they will tell you the only way out of this was to file bankruptcy.

What is the difference between a short sale and a foreclosure?
In foreclosure, the homeowner falls way behind on their payments and the bank repossesses the house and sells it. In almost all cases, THE BANK PURSUES THE HOMEOWNER FOR THE DEFICIENCY. In Short Sales, the bank does not repossess the house, the seller has input on who buys the home, and the bank may forgive the difference of debt owed after sale.
   - Lender has authority
    A lender approves the sale, rather than the individual home seller. In a typical home transaction the seller gets final say on which buyer gets the home, but in a short sale the lender weighs in on that decision, since it’s the lender who won’t recoup 100 percent of the seller’s mortgage balance as in a “normal” home transaction.
   - Offer response
   Lenders take an average of 3-4 months to OK a short sale offer, according to IFM/Campbell data. A regular seller usually responds within days. This means more complication for both buyer and seller. Many buyers who consider putting a bid in on a short sale abandon the deal mid-way through because it takes so long for a lender — unlike a regular individual home seller — to respond to it.

True or False: Short Sales and Foreclosures hurt your credit equally.  
False. Not always. There are many ways of doing short sales that don't hit your credit as badly as a foreclosure...if you know how to communicate with the bank. Even if you have bad credit, you may (or may not) be a good candidate for a short sale.

Do I have to be behind on my payments to do a Short Sale? 
No. Many short sales are done every day by people who are never late on a single mortgage payment.

How do I qualify for a Short Sale? 
A borrower must prove that a hardship exists. The lender must be willing to accept the short sale proceeds as full settlement of the debt. 

What is a Hardship? 
A hardship is a situation that has a life changing effect for the borrower that results in an in-ability to pay the mortgage debt in either, short or long term. Some examples are:
   - Separation or Divorce 
   - Medical Bills 
   - Inability to work due to health reasons 
   - Death of Spouse 
   - Job Relocation 
   - Reduced Income or Unemployment 
   - Business Failure 

How can a Short Sale help me? 
    - Possibly will help you avoid foreclosure and eviction. 
    - Help you minimize credit damages. A foreclosure sticks on your credit record for at least 10 years.
    - Bank may eat the loss of the mortgage difference

Why would banks want to approve Short Sales and lose money?
Lenders lose a lot of money when they foreclose. With so many foreclosures on the market that remain stale and unsold, lenders want to reduce their foreclosure amount as much as possible. The difference in mortgage payment for a short sale can be more beneficial than all the money in a foreclosure.

Why are some Short Sales approved while others are not? What are the deciding factors?
- The payout from private mortgage insurance could reduce that loss enough to make the lender choose foreclosure.   
 - Lenders holding second mortgages, such as home-equity lines of credit, can also kill the sale. Second-mortgage lenders are supposed to be at the back of the line to collect loan payoffs, but they can nix a proposed short sale if they don't think they're getting enough out of it.
- Short Sales are very time sensitive. Once the date of the Notice of Trustees is up, the bank will foreclose on the property.

Can any Real Estate Agent assist me in selling my home in a short sale situation? 
Possibly, but usually you have only one shot to succeed in a short sale transaction or the bank forecloses your property, it is therefore highly recommended you work with a company experienced in short sale negotiations that can properly represent you and is specialized in this field. 

Benefits to the Seller of the property
The seller wins by avoiding foreclosure by selling their home before the foreclosure auction even if they owe more than its worth. If they were to sell the house the traditional way with a realtor without a short sale, typically they would have to bring tens of thousands of dollars to the closing to sell their own home. This is not an option for them because they are in foreclosure and don’t have any money. Sometimes they are able to get some moving money out of the deal where they would get nothing if they lost the home back to the bank.

Benefits to the Lender
The lender wins because they are getting some of their bad debt paid off. You see, when a lender has delinquent loans on their books, it affects how much money they can lend out in new loans because they are regulated by the FDIC. So the more bad loans they can get rid of, the more good loans they can then go ahead and acquire.

Also by taking a home to auction, the lender will lose 35-50 thousand dollars.
So it’s a huge cost savings to them to do a short sale before the auction occurs.

Benefits to the Investor
The investor wins because we get to make a great profit on home, most of the time in the area of 25-200 thousand dollars, that we have invested little money in, have not had to own our credit at risk and we haven’t had to rehab the property.

Most of the time we are able to get these properties at 60 cents on the dollar and they are in great condition. Some have acquired homes through short sales in bad condition for as low as 28 cents on the dollar. Many short sale homes need some TLC, but owners do not have the money to do so.

Chapter 2: Why Short Sales? Help the Bank to Help Yourself!