Borrowers who are facing foreclosure may ask the lender to accept a discounted payoff on their loan. This is called a "short sale" or "short payoff". It allows the borrower to avoid a foreclosure action, and may offer the lender an expedited and less costly resolution of the situation.
A short sale may allow the borrower to maintain a better overall credit record than with a foreclosure. It also allows time for the homeowner to relocate on a more convenient timetable instead of facing eviction and possibly a deficiency judgment down the road.
A short sale may also help the borrower avoid or minimize a tax liability, although it is important for the borrower to discuss the situation with a tax advisor to be sure of the long-term effect.
Most lenders have specific criteria to consider a short sale that relate to the borrower's ability to repay the debt. Some lenders will consider a short sale only when the property is distressed or requires extensive work or repairs. If the lender foreclosed on this type of property, it would have to pay for all the repairs necessary to sell the property.
A short sale may represent a more cost-effective way to pay off the loan. Consult your legal and financial advisors for specific details.
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