The first word that comes into the mind of homeowners when they are falling behind on their mortgage payments is "foreclosure". What these homeowners don't know is that there is another aspect that they can consider with their mortgage company when they are no longer able to pay their account current for whatever reason. This alternative is called a "short sale". Many individuals are not aware of this alternative because there are many lenders who do not accept this option. Some lenders feel that they are loosing financially and would gain a better result going through the foreclosure process.

A short sale is an action where the lender who holds the mortgage accepts funds that are less than the payoff amount. Before a person can determine if this is an option, they should perform some research by experts who are familiar with the process of short sales. Both parties involved should speak with a lawyer to make sure all revenues and bases are covered throughout this process.

The short sale process involves both the customers who currently have the loan and the customers who are interested in obtaining a short sale. The current lenders usually require the borrowers to write a letter that will give the lenders permission to discuss the account with the appropriate parties such as: real estate agents, lawyers, closing attorney and any interested buyers. Be sure that in the letter you are specific in who can obtain this information. You want to include the name of the individuals, any parties who are interested in the short sale, the real estate agent and any lawyers that are involved as well. Along with the authorization letter an estimated closing statement should be submitted as well. This sheet will include the sale cost; the balance of the loan, any outstanding payments/late fees and if there is any commission that the real estate agent would get from the sale if they are involved. This information can be worked up by the closing attorney.

A hardship letter and proof of income is also required for the current borrowers to submit to their lender. This information is needed for the department at the bank who would be working on the short sale process. The hardship letter has no certain length but you don't want it to be too long to where the department doesn't feel that they should read it in it full. It should explain the situation in detail as to why you want to consider this option and the purpose of the delinquency in the payments. Some lenders may come up with other options as far as repayment plans, a modification of the loan or some deferred payments.

In determining the price that you want to submit to the lender, the interested party and real estate agent should consider the balance that is left on the loan by the current borrowers, the current market (active properties on the market, any pending properties and the properties that have sold recently), and the amount of funds that will be left for the current borrowers to pay back to the lender. The process of the short sale can take days, weeks, or even months. The offer has to be presented to the lender's manager as well as the borrowers/agents and reach a decision as to what they will accept and if the interested parties will take.

Once the agreement has been finalized, the lender will notify the seller and interested party either via phone or letter or both. In the letter it will specify the amount of the short sale, how the funds should be received and the date it should be received back. After all paperwork is completed, the new borrowers may want to follow up with their lender and the lender it was purchased from just to make sure there were no steps left out.

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