Steps to Arranging a Real Estate Short Sale

Since 2007, Joseph Zoppo has served as a real estate broker with Colonial Properties, LLC. There, Joseph Zoppo facilitates a number of different types of real estate transactions, including short sales.

In the real estate market, a short sale occurs when a mortgage lender agrees to sell a property for less than is due on the mortgage. This type of sale takes place when the homeowner can no longer make payments and needs to vacate the property yet at the same time wishes to avoid the impact of foreclosure on his or her credit rating. 

For a short sale to occur, however, the seller must secure approval from his or her mortgage lender. Such agreement typically happens only when the seller lacks the equity to pay the difference between the buyer's offer and the total owed. Securing approval is a challenge when the property owner holds two mortgages, as the second lender is likely to agree to the sale only if the offer benefits it in some way.

Lenders most often require an earnest money deposit, which serves as an expression of good faith and serious intent to purchase the property. The lender is also likely to request proof of available funds and a mortgage preapproval letter in order to confirm that the buyer is able to fulfill the obligations of the purchase. In some cases, the lender will request an increase in the purchase price after viewing this information.

Experts recommend that the buyer specify an offer contingent on lender acceptance. Receiving notice of acceptance may take up to a few months. If the buyer has time constraints, he or she may include in the offer the intent to cancel if the lender has not accepted after a certain period.

Refinancing Your Mortgage

An alumnus of Boston University School of Law, Joseph Zoppo’s practice areas encompass a wide range of legal disciplines. As a partner at Peres, Zoppo & Associates, PLLC, Joseph Zoppo assists with various mortgage services, including refinancing.

You typically refinance a mortgage, or obtain a new loan on different terms, to reduce monthly mortgage payments via a reduced monthly interest rate. You may be eligible for a lower rate because of market conditions or improvements in your credit rating. Lower rates could allow you to accumulate equity faster.

Changing the length of your mortgage may also help. A longer term will reduce your monthly payment, but it will also increase the length of the mortgage and total amount of interest paid.

Switching to a shorter mortgage will usually lower your interest rate and total interest paid. However, it will likely increase your monthly payment, as you are paying more of the principal. 

Adjustable-rate mortgages (ARMs) have a variable interest rate that rises and falls with the market, changing your monthly payment. Moving to a fixed-rate mortgage obviates worry about such events (although taxes and fees could increase anyway). It is also possible to obtain a new ARM at a lower range of rates, smaller increases, or lower payment caps. 

Refinancing can also be a cash source for expenses such as education. Called a cash-out, this represents the difference between your remaining balance and your home value. You could receive this amount in a lump sum, although this involves reducing equity. Another option is a home-equity loan or line of credit.