What is a short pay?
A short pay is when an owner pays off a loan by paying less than what is currently owed on it. A short sale is the sale of a property such that it results in a loan being short paid by the owner. Both occur when the property is sold and the sale price is less than the loan currently owed by the owner.
Until recent years, few people knew much about short sales or short pays. Those real estate agents and attorneys who were active in real estate in the 1990s are revisiting the practice of short selling property as an alternative to foreclosure. Several training programs have been developed over the last two years to help agents learn the intricacies of how to determine if a homeowner may qualify for a short sale and how to handle the myriad details required to attempt the process. Some of these programs require many hours of reading and instruction, leading to certifications verifying the course was completed.
A short sale is also sometimes called a “pre-foreclosure sale.” However, not everyone facing a foreclosure qualifies for a short sale.
When should a homeowner consider a short pay?
For a homeowner whose property’s market value is less than the total encumbrances they owe, and who is having increasing difficulty making the mortgage payment, a short sale may be a good alternative to foreclosure. Know your options as a seller and you may not be forced to let the property go into foreclosure.
If you don’t qualify for a short pay, you may still be able to negotiate a compromise with your lender, whereby you agree to pay the balance of the debt over time after the close of escrow. As a result of paying off the balance of the loan, you would likely have less negative credit repercussions or other legal issues.
Contacting a real estate agent or attorney knowledgeable in the negotiation of short sales will start the process and help you figure out whether or not a short pay, with or without a work-out for the balance with your lender, is an option for you. Your agent should be well organized and informed to help you the most effectively. When you start this process, be prepared to answer many personal questions about your finances as that is the only way for a trained agent to effectively assist you in evaluating your situation.
Who should consider a short pay?
Although a short sale may be the best solution for some homeowners, it may not be for those individuals who have some assets, a long-term job with good salary/wages, etc. This is why individuals considering a short pay off should seek advice regarding the advisability of proceeding in this manner.
Part 2 of this article will include information on how the short sale process works, what the lenders will require, and items that will be taken into consideration.
Michael Edlen and his team are experienced distressed property owner specialists, certified by the National Association of Realtors as a short pay and foreclosure resource. They may be reached at 310.230.7373 or Michael@MichaelEdlen.com.