Short sale vs Short payoff

What’s the difference between Short Sale vs Short Payoff

In our current real estate environment it is crucial that to fully understand the difference between a “Short Sale” and a “Short Payoff”.

A Short Sale is where the lender or investor agrees to accept an amount less than actual owed on the property.

The Criteria for a Short Sale are that the borrower demonstrates a verifiable long term hardship.

A Short Payoff is when the lender agrees to release the lien (their interest) on the property and allow the property to be “conveyed” to a new owner. The lender agrees to accept less than the amount owed on the property to release the lien however they extend a certain amount of “credit” to the borrower in the form of an unsecured line of credit or promissory note.

The Criteria for a Short Payoff – The mortgage is current, the borrower has great credit, the borrower had and can demonstrate the ability to pay off the debt.

When would you request a Short Payoff? – You would request a short payoff when the home has lost value dramatically and you do not have the ability to pay the large amount to get completely out of the property.

Note – Not all lenders will allow for a Short Payoff, however you will never know if you never ask.

Advantages of a Short Pay-Off:

•      You are able to move out of the property and get on with your life.
•      You SHOULD receive no negative feedback on your credit
•      You may obtain a lower interest rate on the loan. Sometimes 1-2%.

If for some crazy reason your ability to pay changes and your client are not able to pay on the note, the credit ramifications are significantly smaller.

How to apply for a short payoff
1. If possible call the lender and ask them if they will accept a short payoff. Remember you may need to talk to a supervisor or to loss mitigation directly.

2. Put together your package, this is the same information as your short sale package, however the goal is to show the lender the abilty to pay not the inability to pay.

3. Do not accept the first no as the answer, and never paint a lender or servicer with a broad brush. Remember most lenders do not work with just one investor, lenders sell their loans to different investors so if Countrywide( now Bank of America) says no today that does not mean no tomorrow.