A short sale or short pay is when the seller asks their current mortgage holder(s) to take less than what they owe as payment in order to sell their property.
For example, the seller may have bought a home in 2007 for $500,000, put 5% down, and now has a loan of about $470,000.
Now maybe they can only sell the house in today’s market for $400,000, so they have a short fall or excessive debt of $70,000 plus the cost of sale.
Since they don’t have the money in the bank, they ask for the debt to be waived. That way they can still sell their home. They are “selling short” or have a “short pay off.”
Unfortunately, the process of approval can take months if the seller has ever approached their bank previously. The complexity of getting this approved depends on who holds the loan on the house, and whether a PMI (Private Mortgage Insurance) was involved.There may also be tax consequences.
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