What Happens in a Short Sale

A: A short sale means that the buyer is offering less than what is owed on the existing mortgages. The funds in the deal will be "short" the amount needed to pay off all of the lenders and closing costs. To complete a short sale transaction, all lenders must agree to accept less than what they are owed.

In your case, while the principal lender was willing to accept less than what was owed, the home equity line of credit lender (or the second lien holder) was not.

Here's some background on this: What has been happening is that the second mortgage investors have been getting nothing out of short sales, while the primary lender gets whatever is there. Increasingly, second lenders haven't been willing to just suck it up and lose everything.

This has nothing to do with you and everything to do with the owner and his two lenders. It's unlikely you can salvage this deal, and it was nice that you got your earnest money deposit back without having to chase anyone for it.

The only thing that might help you is time: As the weeks go on and the credit crisis deepens, banks and mortgage lenders are being encouraged to clean up their books and get rid of all the real estate on it. Once a few weeks have passed without an offer, the second mortgage lender might be more receptive to getting the property off the books.

As far as your contract with the seller was concerned, you should talk to a real estate attorney about that issue. But your seller will be unable to give you clean title to the property if he does not have the cooperation of both of his lenders to undertake the short sale. Also, if your contract stated that the sale was contingent on the seller obtaining the lenders' permission for the short sale, you would be unable to force the seller to close on the original deal you struck.

You could also offer to pay a few thousand dollars to get the deal done, provided that cash goes directly to the second mortgage lender. If they get something, even a small amount, they may be more than willing to get the loan off their books.

For more details and perhaps other options, consult a local real estate attorney. By the way, the attorney may be able to help you negotiate a deal with the lenders directly.

NOTE: Ilyce R. Glink's latest ebooks are "The Clutter Collector: How to Get Rid of Clutter Everywhere in Your Home" and "How to Save $50 a Month," which are available at her new, all-video website, www.expertrealestatetips.net. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact her through her website, www.thinkglink.com. © 2008 by Ilyce R. Glink. Distributed by Tribune Media Services.