Short Sale Information
What is a Short Sale?
A short sale happens when the lender is shorted on a mortgage, meaning the lender accepts less than the total amount that is due. As an example, if your mortgage is $100,000, but your home is currently worth $90,000, you are $10,000 short between what you owe on your mortgage and the present market value of your home, not including costs to close the sale such as real estate commissions, recording fees or title and escrow charges.
Sometimes, to avoid going through the costs of foreclosure, a lender will agree to a short sale by letting a new buyer purchase the home for less than the mortgage balance while the home is in the foreclosure process.
Here are Sample Steps of a Short Sale:
A seller signs a listing agreement with a real estate agent subject to selling as a short sale with third-party approval.
The agent finds a buyer who makes an offer for less than the amount of the mortgage.
The seller accepts the buyer's purchase offer.
The seller's lender accepts the buyer's purchase offer.
The transaction closes when the buyer delivers the funds, the lender releases the lien and the seller delivers the deed.
Qualifications for a Short Sale:
The Home's Market Value Has Dropped
Hard comparable sales must substantiate that the 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
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 future problems by agreeing to a short sale.
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 seller has or will stop making the monthly payments.
Examples of hardship are:
Short Sale Consequences
A short sale is dependent upon a buyer making an offer to purchase your home. If you do not receive an offer, you will not qualify for a short sale. Consequently, 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 at the buyer’s offered price will not take place. The buyer can, however, increase the initial offer and resubmit the higher short sale offer to the lender.
Benefits to a Short Sale Compared to Drawbacks to a Foreclosure
The benefits to a short sale are explained above. Few people, apart from the sellers who choose to buy and bail, really want to experience a foreclosure. Memories are made in a home, and losing it can shatter future dreams. Here are other drawbacks to foreclosures:
The right of home ownership is stripped away.
Homeowners return to the rental market as a renter.
The bank may post a Notice of Public Sale on your front door.
Your credit takes a nose dive, and a foreclosure will remain on your credit report for 10 years.
Under Fannie Mae guidelines, without extenuating circumstances, you may not be eligible to buy another home for 7 years.
Always seek legal counsel before attempting to pursue a short sale. A real estate agent cannot give you legal advice.