10 Frequently Asked Questions About Real Estate Short Sales

What is a short sale?

A short sale is a home sale for which the proceeds are less than the amount of liens on the property. In the event of a short sale, the lien holder (lender) must agree to accept less than the amount owed and must give permission for the sale to be completed. It is an alternative to foreclosure because it eliminates extra expenses, time, and potential damage.

Is it possible to get a mortgage after a short sale?

Most lenders have restrictions for future mortgage financing after a short sale. The restrictions are set by the highest levels of mortgage regulation.

What is a short sale deficiency?

The unpaid balance of the mortgage lien is called the deficiency.

Does a short sale deficiency need to be repaid?

The lender can either forgive the deficiency or require the repayment of the amount still owed on the mortgage. Many lenders will require evidence from the debtor (borrower) that there is a financial hardship when negotiating the repayment of the deficiency. This includes first mortgages, second mortgages, HOA fees (often in the case of condo short sales), and liens from contractor for home improvements.

How long is the short sale process?

It varies, but the entire short sale process can take 5 to 7 months. Each lien holder must agree to the short sale or they can prevent it from being completed. Negotiations alone can take months.

How do I pursue a short sale?

Homeowners who are considering the short sale option must complete an application with their lender to determine their eligibility for a short sale. Income, employment, and asset documents will likely be required as well as an appraisal to determine the true value of the property. The homeowner will also have to send a hardship explanation letter explaining why the short sale is needed.

What should I put in a short sale hardship letter?

The reason could be as simple as being trapped in the property due to loss of equity in the home. If the property was purchased in 2008 or 2009, for example, the value may have dropped considerably.

How can I keep a short sale smooth?

If the lender allows, it is in the homeowner’s best interest to keep the payments current on the mortgage throughout the short sale process. Individuals who have gone through a short sale but have not missed any mortgage payments may not have to wait to obtain mortgage financing on a new property. Because short sales typically take months to be approved, patience is needed.

Most homeowners enlist the assistance of a licensed real estate agent to help them during the short sale process. The lender will typically allow a commission be paid to the real estate agent in consideration for their cooperation during the process.

Will a short sale hurt my credit?

If the short sale deficiency is reported by the lender to the credit reporting agencies it will have a negative impact on the homeowner's credit. A short sale may be as detrimental as a foreclosure on a person’s credit history.

How can I repair my credit following a short sale?

After completing a short sale where mortgage late payments have occurred, there are certain steps that can be taken to help reestablish your credit and protect yourself from further financial implications.

• Request a letter from the lender that approved the short sale specifying the terms of the short sale.
• Review your credit report from all three credit agencies to insure the short sale has been reported correctly.
• Consult your accountant, CPA, or tax preparer to investigate any possible tax ramifications as a result of the short sale and deficiency.

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