Short Sales

What is a Short Sale?

When the lender is willing to accept less than is owed on the mortgage, it is called a short sale. A short sale can be beneficial for both the lender and the homeowner.

Here are a few scenerios where a short sale might occur.

Declining Market
Someone who purchased their home in the last year or two might find themselves in a short sale when trying to sell their homes in today’s declining market. They may have had a 100% loan, or perhaps taken out some of their home’s equity via a loan or second mortgage. In real estate terms, they are ‘upside down’ or they owe more that their home is worth.

Personal Difficulties
A home owner loses their job, gets behind on their payments, and find they cannot keep current. They bough the house a year ago, and financed the purchase with a 95% loan, and also financed the closing costs. They might consider foreclosure the only way out of the financial mess they are in. They are concerned that foreclosure will ruin their credit, or perhaps prevent them from buying another home in the future. For them, a short sale might make sense.

How does it benefit the lender?
Banks aren’t in the real estate business. To them, it costs time and money to deal with foreclosed properties.

How does it benefit the homeowner?
Short sales save your credit score. By avoiding the stigma of foreclosure, homeowners are more likely to be able to borrow money in the future, and eventually, own another home.

What will you need to explore a short sale with your lender?

1) Contact a supervisor at your lender, preferably someone who specializes in short sales. Discuss your situation with them and work out some sort of short sale plan. Keep them informed, so that they do not start foreclosure proceedings against you in the meantime.

2) Write a hardship letter, which describes the series of events that happened, and why you cannot keep your mortgage payments current.

3) Be prepared to submit bank records, proof of income and expenses, as well as tax returns to your lender.

4) Have your real estate agent prepare an up to date Comparative Market Analysis, to verify that your home has declined in value, and is not worth what is owed.

More info:

Business Week Article

WSJ Article

Realty Times Article