Short Selling A Home: Everything You Need To Know

If you aren’t familiar with a short sale, it’s a fusion of sorts between a foreclosure and a regular sale.

Like a foreclosure, the mortgage holder won’t receive all of the money they lent on the home. But the mortgage holder doesn’t have to foreclose on the home either.

The process is one when a homeowner sells to a buyer for less than what is owed on the mortgage — and the mortgage holder accepts less than is owed as full payment for the loan.

In a short sale, the bank never becomes responsible for maintaining the home or for paying utility bills and taxes.

Since the short sale is for less than the full amount of the mortgage, the seller won’t receive a nickel from the sale. Still, this is often a win-win-win for the seller, buyer and lender.

A Short Lesson About Closing a Short Sale

• The seller must understand the process.
• They will not see a nickel from the deal.
• They have to fully disclose their financial situation. A short sale requires they can no longer make the mortgage payments.
• They may or may not be held responsible for the deficiency.
• The short sale may not occur and they could still face foreclosure.

The professional skills needed are:

• Escrow.
• Title.
• Real estate attorney.
• Real estate agent — maybe.
• Sellers must agree to fully cooperate, although they receive no money. Documentation is required, including a financial hardship letter.
• A good test of whether they will fully cooperate is if the seller will provide the paperwork within about five days.
• The buyer needs to inspect and investigate the property thoroughly. Routine maintenance and upkeep may not have been done. There may be undisclosed liens on the property.
• The current value of the property must be established as less than what is owed. This can be done with an appraisal, but is often done with a less expensive broker price opinion, or BPO.
• The buyer makes an offer to the lender based on the BPO; it often begins at 75% to 80% of the BPO.
• All of the paperwork needs to be submitted with the BPO-based offer. This includes the seller’s financial hardship letter with supporting documentation. It often includes documentation of needed repairs, liens and other reasons supporting the short sale offer.

Following Up On A Short Sale Offer

Lenders are seldom in a hurry to accept a short sale offer.

It usually requires the buyer to follow up, follow up and follow up some more with the lender once they have the package. Otherwise, the process for short sales is mostly the same as for any other sale.

Although the process is tenacious, remember that everyone in the deal benefits.

The buyer gets a property for well below market value. The seller gets out from under the home without having a foreclosure on their credit report and hopefully without being responsible for the balance owed on the mortgage.

The lender gets an asset off their accounting books before it becomes a liability that they'll lose even more money on if they take it in foreclosure.

One last thought: negotiating with the lender can be a relentless process. It takes a detail-orientated person and someone who is organized and persistent. If that is not you, a short sale might not be for you.