What is a short sale?

Also known as a “pre-foreclosure” sale, a short sale transaction occurs when a Lender agrees to let the Homeowner sell their home for less than the loan amount that is owed. The Borrower is relieved their mortgage debt and the Lender recoups some or majority of the loan amount owed. Short sales are successful because they are attractive to first-time buyers and investors as they hit the market at a reduced-prices and allow struggling homeowners to avoid the foreclosure process. 

Short Sale Process?

In order to begin the short sale process, the Seller or Seller’s attorney will need to submit a hardship letter with his/her Lender stating why their mortgage obligation cannot be fully paid off in full and supplement their letter with documents proving their claim, such as tax returns and pay stubs. The Lender will evaluate the claim and grant the short sale if the Homeowner only recently became financially impacted. In considering, Lenders will look to see if there was a downturn in the borrower’s financial position such as job loss or a sudden health crisis. 

Once approved, the property will be designated as a “short sale” as an active listing. When an offer is made, the Lender will need to accept, counter or reject. When an agreed sales price is reached, the property is sold, and the Lender will either forgive the difference in outstanding debt or assert a deficiency judgment against the borrower. If the latter occurs, the Homeowner is required to pay the difference between the sale price and the original mortgage.  

Although intended to be a quick sale, the ball is ultimately in the Lender’s court, and the Lender has the authority to approve or deny offers. The average short sale takes about 4-6 months to complete, compared to a traditional sale which takes about 45 days to close. 

Is a Short Sale Right for Me? 

On the sale side, if you are falling behind on your mortgage payments and struggling to make ends meet each month, a short sale may be right for you. Sellers consider this a proactive way to provide financial relief and avoid serious damage to credit caused by foreclosure. 

If a short sale is right for you, benefits include such as (1) faster credit score recovery, (2) peace of mind of avoiding foreclosure, and (3) saving unnecessary attorney and collection fees and charges. However, not everyone is lucky to end up on top through this process. The closing paperwork is more complex and considerably longer. 

In sum, a short sale provides an “out” for homeowners/borrowers falling behind with their mortgage payments and who may owe more than what the proceeds of the sale would result in, due to a recent change in circumstances. 

Contact Tannehill Law LLC to discuss if a short sale is an option for you. 

Co-Authors: Breanna Raspopovich and Melissa Tannehill