What is a short sale?

When a homeowner (borrower) is faced with financial difficulties and falls behind on their mortgage it can be very stressful. If you miss multiple mortgage payments, your mortgage company may begin to harass you for payment, even though you cannot afford it. If you owe more on your home than it’s worth and are willing to sell the house and move into something more affordable then you should consider a “short sale.”

A short sale involves 1. a delinquent homeowner who 2. lists their house for sale 3. at a price lower than the mortgage balance and 4. gets the mortgage company to accept the lower purchase price instead of filing for foreclosure and 5. the mortgage company cancels the mortgage loan.   

Short Sale Process

The short sale process can be a long, trying one because you must consult the lender every step of the way and rely on their approval which might be complicated and time consuming.

  • Begin the paper work: If you contact your mortgage company and state that you are interested in a short sale the company will send you forms to complete to show that you qualify for “loss mitigation” programs, including a short sale. You generally need to show that you are no longer able to afford your mortgage payments by writing a hardship letter. You will also have to submit documents like tax returns, bank statements, asset statements, and pay stubs as proof of your financial situation.  
  • Create your short sale package: This is where you will produce cogent information on your finances and other documents backing the short sale. Compile information like the comparable sales of real estate in the neighborhood and if possible, include a purchase agreement. An experienced  attorney can help you create this short sale package to submit to the lender.
  • Review and evaluation: When you submit the short sale package to the lender, it will review your application through its underwriters to ascertain your eligibility for the short sale. An appraiser will be sent to determine the actual value of that property as per the short sale offer. This may influence the decision of the lender to accept or reject your application or ask for a higher payoff which will lead to negotiations.
  • Approval and sale: Once your short sale request is granted by the lender through a short sale approval letter, you can go ahead and sell the property according to the terms reached by the mortgage company. Approval may take some time; you need to be patient.

A short sale can be a tough solution because you must relocate, but there are benefits.

  1. A short sale saves the lender the expenses of foreclosure and the possibility of being saddled with the property for a longer period, so the mortgage company is usually happy to find a mutual solution.
  2. The delinquent borrower is also saved a lot of hassles and expenses associated with foreclosure.
  3. A short sale does not harm the borrower’s credit score as much as a foreclosure would. Credit scoring companies will give a better credit score in a short sale allowing the delinquent borrower to stay in the game while also protecting the borrower’s credit score.

A short sale is one of those compromises where no one wins and no one loses. The borrower will generally be denied any cash from the proceeds of the short sale and must depend on the lender to approve the sale, while the lender will receive less money than the debt owed. Contact an experienced loss mitigation attorney today for a free consultation.


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