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Q&A: How does a short sale work?

Will my mortgage company set the price for the amount they will accept for a short sale? And, will that number include the fee for a Realtor to help sell it?

A: You have asked an interesting question, and the answer depends on various factors.

For starters, if you are going through a short sale right now, you know that the value of your home is less than what you need to pay off your lender in full.

But there are at least two types of short sales in the eyes of the lender: those in which the homeowner has the cash to make up the difference between the sales price and what is owed to the lender, and those in which the homeowner can't make up the difference.

Let's start with cases in which the homeowner can actually pay off of the loan. For example, let's say a borrower bought a home five years ago for $300,000 and sells it today for $250,000. And let's say he has a loan balance of $250,000. When it comes time to close, he'll have to show up at the closing table with around $20,000 or more to settle all of his obligations from the sale of the home.

Why pay off the lender? If the homeowner wants to keep his credit history and score intact and has the money to pay the difference between what he owes and what he received from the sale, then it makes sense to pay off the lender in full.

However, not all homeowners have that money in hand, and many don't have enough cash to make their monthly mortgage payments. For these homeowners, the money that comes in from the sale of the home may be all the money available to pay the lender and all other parties to a real estate sale. This second type of short sale has become the most common type.

For the short sale to go through, the lender must agree to receive an amount less than what is owed. The lender must agree to release the mortgage and lien the lender has on the home in exchange for the money.

Usually, lenders will agree to pay the listing agent a commission on the sale of the home. However, many lenders will review the commission amount. It may be that lenders want to make sure that the agent does not get paid more than the standard in the area. Sometimes, a lender will require a listing agent to agree to take less than the agreed commission amount to get the deal done. But lenders generally recognize that they need to allow commissions to be paid to real estate agents.

If the buyer has already stopped paying on the mortgage and the property does not go through a short sale now, the lender knows it will end up having to foreclose on the property, take title to it, list it with a real estate company and pay a commission for the sale down the line -- and will wind up with less money on the other end.

So, to answer to your question, a lender will typically allow a real estate listing agent to receive a real estate brokerage commission on a short sale.

Ilyce R. Glink's latest book is "Buy, Close, Move In!" Distributed by Tribune Media Services

Need some real estate advice? Email your question to realestate@newsday.com.

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