What is a short sale?

A short sale is a process in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner.  This means the homeowner can sell the home for less than what is owed on the mortgage loan/loans.  In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt. A short sale allows the seller to avoid having their credit score hit with a foreclosure penalty, but there is still a penalty given for a short sale on your credit report scores.


Why are short sales on the rise?

Due to the recent economic crisis that includes the rising unemployment and the decrease in home values, short sales are on the rise. Because a short sale tends to cost the lender less than a foreclosure would, it can be a viable way for a lender to minimize its losses.

A short sale can also be the best option for a homeowner that may be "upside down" on their mortgage. This means that the owner owes more than the house is worth.  Short sales tend to not hurt a persons' credit report score as much as a foreclosure would.  As a result of this, a person may qualify for another mortgage quicker than they would if they foreclosed on their home, once they get back on their feet financially.


What is the short sale process?

1. Contact your lender to discuss the chance of a short sale on your home. Determine the lender's process for completing a short sale, successfully. You should consult with a short sale attorney.

2. Then you will have to send the lender a letter of hardship explaining your situation. Other documents besides the letter of hardship that the lender will want to see are your bank statements, investment accounts, paystubs, tax returns, medical bills and any other documents that have relevance to your financial situation.

3. You should then seek a qualified real estate agent to help you through this short sale process, list the home on the market and wait for an offer.

4. The lender will review the documents that you gave them and consider forgiving the remaining loan balance, all expenses (property taxes, etc), real estate commissions and other expenses associated with the closing.

5. If an appropriate offer comes in, and you have a patient buyer, accept the offer than submit it to the lender.

6. A BPO (Broker Priced Opinion) will be ordered to examine the prices of homes in the area.

7. Once all the appropriate documents (including a short sale package from your real estate agent) are in the lenders' hands its a waiting game. This could take anywhere from 6 weeks to 9 months.

8. If the short sale is approved from the lender/lenders than you would continue with the real estate agent to get it closed as soon as possible.