What Is a Short Sale?

A Short Sale allows the borrower to sell their home for less than the total amount due on the mortgage loan secured by the home.  It helps the borrower avoid foreclosure and reduces some of the lender’s loss by avoiding or minimizing foreclosure activities.  The borrower does not receive any of the proceeds of the Short Sale.

A Short Sale is a cooperative process versus a legal resolution such as foreclosure or eviction that allows the borrower to maintain some control and dignity throughout the process.

Short Sales happen when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale.  Not all lenders will negotiate a Short Sale and that is why  a Real Estate Agent can be a tremendous help by contacting the lender’s loss mitigation department to find out. Jim Kennedy has been extremely active in the process of Short Sales as well as Foreclosures for over 15 years.

Short Sale Example:  If the loan amount on your property is $200,000 and the property can only be sold for $160,000 (less $15,000 in closing costs) you will only have $145,000 balance to pay to the bank.  In a Short Sale the bank will have to reduce the outstanding balance owed to $145,000 in order to allow the short sale to proceed.  The seller’s closing costs are paid by the bank.

Here are sample steps of a Short Sale:

1. Seller signs a Listing Agreement with a Real Estate Agent subject to selling as a Short Sale with third-party approval
2. The agent finds a buyer who makes an offer for less than the amount of the mortgage.
3. Seller accepts the buyer’s purchase offer.
4. Seller’s lender accepts the buyer’s purchase offer.
5. Transaction closes when the buyer delivers the funds, the lender releases the lien and the seller delivers the deed.

Do You Qualify for a Short Sale?

Consider the following to determine whether you may qualify for a Short Sale.  If you cannot answer YES to all four requirements, you may not qualify.

• Your Home’s Market Value Has Dropped

Recent Comparable Sales must demonstrate that your Home is worth less than the unpaid balance due the lender.  This unpaid balance may include a prepayment penalty.

• The Mortgage is in or Near Default Status

It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case.  Realizing that other factors contribute to a potential default, many lenders are eager to head off the future problems at the pass.  Please keep in mind, each potential Short Sale is reviewed on a case by case basis.  A borrower whose mortgage loans are current (not delinquent) WILL NOT be considered for a Short Sale unless there is adequate documentation to imminent hardship.

• The Seller Has Fallen on Hard Times

The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the sell has or will stop making the monthly payment.

Examples that DO NOT represent a Hardship:

Bad Purchase Decisions

Unhappy with the neighbors

Buying another home

Pregnancy

Moving into an apartment

Examples of Hardship are:

Unemployment

Divorce

Medical emergency/sudden illness

Bankruptcy

Death

• The Seller Has No Assets

The lender will probably want to see a copy of the seller’s tax returns and/or a financial statement.  If the lender discovers assets, the lender may not grant the Short Sale because the lender will feel that the seller has the ability to pay the shortened difference.  Sellers with assets may still be granted a Short Sale but could be required to pay back the shortfall.

For example, if the seller has cash in a savings account, owns other real estate, stock, bonds or even IRA accounts, the lender will most likely determine that the seller has assets.  However, the lender might discount the amount the seller is required to pay back.

Short Sale Consequences

A Short Sale is dependent on a buyer making an offer to purchase.  If you do not receive an offer, you will not qualify for a Short Sale.  So even if you meet all the other criteria, it is possible that no one will buy the Short Sale.  It is also dependent on the lender accepting the buyer’s offer.  If the lender rejects the offer, a short sale will not take place.

Option To Consider Before a Short Sale

Sell The Property: Contact me and I will run the number to see if it’s still possible to get the property sold through a regular sale without having to sell short.

Always seek legal counsel before attempting to pursue a short sale.  A real estate agent cannot give you legal advice.

Looking to Sell? – Contact Me