What is a Short Sale?

A Short Sale is a process through which a Homeowner may sell a property in order to avoid foreclosure. It is a real estate transaction where the Homeowner's mortgage lender agrees to accept a payoff that is less than the outstanding debt owed the property. The sale proceeds are used to pay off the mortgage, and the lender typically writes off the remaining balance as a loss. The property is sold at market value, ideally to a buyer who intends to occupy the property as a primary residence. It is sometimes sold to investors if the property is in need of repair.

Will I make money in a short sale?

Because of the very nature of the short sale, you are short in paying off what is owed. Proceeds go to the mortgage lender. Depending on the lender, the homeowner may qualify for relocation assistance (funds to move) as part of the short sale.

What are the steps involved in a Short Sale?

• Time Frame: Understand that the Process involved can take as many as 2 to 12 months or more, depending on the state you are in.

• The homeowner's real estate agent lists the property for sale at market value.

• Once an offer or offers come in for the property, complete offers are sent to the lender, including the buyer's financing qualifications, earnest money deposit information, and information about the local market.

• Some Lenders will require an offer to come in before they initiate the Short Sale Process; others will initiate the process when the Homeowners expresses a hardship and requests a Short Sale Packet from their Lender.

• Hardship Letter: The homeowner must first confirm their eligibility with the lender by answering financial questions and submitting necessary documentation, including a hardship letter.

• The lender (not the Homeowner) has the right to approve the offer, present a counteroffer, or reject an offer.

• Appraisal or Broker Price Opinion: The lender orders an appraisal and/or Broker Price Opinion to determine fair market value and sends a valuation letter to the seller with an acceptable sale's price, terms and expiration date.

• Buyer and seller complete the sale under the lender's terms.

• The seller is released from all or part of their loan responsibilities at closing/settlement.

• Secondary lien releases may be necessary if there are other mortgages or liens on the property.

Pros and Cons of a Short Sale

Pros:

• Escape Foreclosure: Homeowner will be able to purchase a home in the future without the harmful effect of foreclosure -- having to wait (up to 7 years) before qualifying for a mortgage loan.

• Credit score takes less of a hit than foreclosure.

• You won't have a public record on your credit report, as you would in bankruptcy or foreclosure.

• The sale can be handled discreetly and without shame.

• Attorney fees and real estate commission are paid for by the lender as part of the short sale and not directly paid by the Homeowner.

• Home is sold AS-IS and no repairs are required to be made by the Homeowner.

Cons

• You need to take responsibility for the sale of your home vs walking away in a foreclosure.

• The approval process can be time-consuming.

• There are potential tax ramifications if not negotiated properly.

Bottom Line

The first thing to do is call your bank and let them know that you are experiencing hardship. Your bank may be more apt to work with you to find solutions if you brought up your hardship before you were significantly behind.

Consult a Real Estate Professional, Attorney and tax professional who are experienced in Short Sales to help you navigate this process. If you try to handle a complex short-sale transaction yourself, you may find yourself in even bigger financial trouble.

You may be able to pay for these service fees out of the sale proceeds from your home. Professionals accustomed to dealing with short-sale transactions will be able to give you guidance on your best options, depending on your unique circumstances.

Kelly Jackson is a Professional REALTOR® who has assisted hundreds of Homeowner's with selling their homes through short sale. For the past 22 years, she has been an advocate for Homeowners seeking options to avoid foreclosure. Call 240-385-9905 to schedule a confidential call or schedule an appointment here: https://calendly.com/kelly-jackson-calendar