Short Sales, an Overview

What is a Short Sale??
A Short Sale is when your mortgage holder/ lender agrees to receive less than what is currently owed on the mortgage, including any late fees, penalties, interest, etc.


Why would a lender accept less than what is owed?
Many lenders have realized that negotiating and accepting a Short Sale is less expensive and tedious for them than going through the foreclosure process.


What are the requirements for a Short Sale?
The borrower has to be in an ongoing financial difficulty that does not allow them to continue to make payments on their property. Typically, the lender will require you to disclose all of your financial information as well as a statement of Financial Insolvency.
Depending on the kind of loan you have and the lender you are with, there are some other requirements and criteria. Some additional information is available on Home Affordable Foreclosure Alternatives, a government-sponsored program (HAFA)


What should my next step be?

The first thing you should do is put your home on the market. Contact a REALTOR and be sure to let them know that you are interested in selling your home in a Short Sale. You will need to sign a Third-Party Authorization, giving the lender permission to speak with your REALTOR about your Short Sale transaction. Your agent also will explain the Short Sale process to you in further detail according to your specific circumstance.

What is the typical Short Sale process?
Different lenders have different processes, however many of the follow the same general process. Typically, your REALTOR will list your home at the price they think is reasonable for the market and they should indicate that all offers are 'Subject to Third-Party Approval'. Once an offer comes in on the property, your signature as the owner is required and then the offer is submitted to the lender. The lender then takes steps to determine the current market value of the property and decide if the offer submitted is sufficient. This process can take up to 12 weeks, BE PREPARED TO WAIT. Once the lender approves the offer, then the Buyer can proceed with the typical purchase and closing process.


What kinds of things should I be sure are handled in the negotiation of the Short Sale?
There are a few things that you should be aware of and that you may want to make sure are negotiated into your transaction, with the lender.


1. Deficiency Judgement: The lender typically has the right to pursue you, the seller, for the difference between the Final Sale Price and the Amount that was Owed to the lender, after the sale is completed. .


2. 1099 Income Statement: Another option for the lender is to produce a 1099 Income Statement for the difference between the Final Sale Price and the Amount Owed to the lender. Which means that the seller is responsible for paying taxes on that amount as if it was income for that tax year.


You want to request the lender to NOT pursue these after the sale, during your negotiation. Make sure you get the agreement in writing!!




Please feel free to add any additional information as a comment, that you have experienced to help others reading this post. Also feel free to email me with any specific questions that you may have.