Short Sale Vs Short Pay Off

You often hear the term Short Sale and Short Pay. They both are programs that involve a servicer review and a that a lien holder is being shorted and taking a loss on the mortgage payoff. They are similar in that nature but the outcome is distinguished as one program transfers the home to a new purchaser and the other is a designed for a borrower to retain ownership of their home.

In a short sale you are going through a detailed review with the mortgage servicer(s) and lien holders to obtain permission for them to take a loss and to sell the asset to a new buyer. The borrower wants to mitigate losses and reduce potential liabilities associated with a home that may be in foreclosure and an overall personal financial hardship. 

In a Short Payoff a borrower is looking to settle mortgage debt and retain ownership of the property. Short Pay Offs are typically not options for borrowers as most lenders do not settle first mortgage debt to allow borrowers to keep the property. Also, most borrowers are not able to settle a large lien in a large cash lump sum. These programs are very uncommon for first lien holders but are not unheard of. We typically see these programs more available on charged off upside down or subordinate mortgages.

Both programs have negative credit impact, deficiency judgments if not waived, and potential tax liabilities due to the cancelled debt if settled.

If you have questions or need anything at all reach out to me at [email protected] or 310-564-6389