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Short Sale

What is a Short Sale?

A short sale is when a seller who is unable to make their mortgage payments, negotiates an acceptable agreement with the lender in the hopes of avoiding foreclosure. In this type of sale, the lender accepts an amount less than the seller’s mortgage and closing costs, and consequently, the seller’s credit will be affected. The seller must provide proof of hardship, such as loss of employment or any drastic change in finances that would substantiate the owner’s inability to maintain payments.


The Process

In a Short Sale, the seller may be experiencing hardship, or there is not enough equity in the home to pay off the mortgage. Either way, the seller needs to sell the home and current market conditions will only allow them to sell for less than their property is worth.

The lender will have to agree to accept less than what is owed on the loan due to the seller’s financial hardship. The seller will then contact a real estate agent to sell the property for less than the mortgage amount. The agent will list the property in the MLS (Multiple Listing Service) and once an offer is made, the seller must accept.

The seller will then have to submit an extensive short sale package to the bank, which will include: an authorization letter, a preliminary net sheet (outlining what the bank can expect to net), proof of income and assets, tax returns, a hardship letter, the purchase agreement and a Comparative Market Analysis (put together by the real estate agent to let the bank know what the current market value for the home is.)

Once the short sale package is submitted, it is in the lender’s hands, however, the seller is largely responsible for the speed and efficiency of this process. Providing complete documentation in a timely manner will insure a smoother process, and a quicker one. If the offer is approved, the transaction will close, however, the seller does not receive any compensation from the sale.

What are the Credit Implications of a Short Sale?

When the seller sells off their home at a loss to the bank, they face credit implications that are unavoidable—specifically, a drop in their credit score, which can range anywhere from 85 – 200 points. Although a short sale is a less drastic measure to take than foreclosure, it will appear on your report for seven years as opposed to ten for a foreclosure. The difference in the severity of the implications will depend on a few things. How the lender chooses to report the sale on record, and whether or not the seller missed any of his payments.

In most cases, a short sale makes more sense than a foreclosure. If you ever want to purchase property in the future and need to obtain a loan to do so, you will have a lot more options available by doing a short sale rather than a foreclosure. And, if you are current on your mortgage payments through a short sale, you are still eligible for an FHA loan in the future without the inconvenience of waiting periods.

Our Expertise

Our team of experts is here to guide you through the short sale process and to insure the best possible outcome is reached. Whether you’ve suffered a hardship or fallen behind on your mortgage, we can help you avoid foreclosure and in most cases, a short sale is the first step.

In our experience, the response times can vary from as little as two weeks to as long as 90 days to receive an approval of an offer from the lender. As previously noted, the time frame of a short sale depends on the lender processing the paperwork, and the accuracy of the seller in submitting his paperwork to the bank.

Short sales are very complicated and should only be handled by an experienced agent. When buyers work with a Realtor in purchasing a short sale, they have the piece of mind knowing that the title of the property they just purchased is free and clear of any liens.