What is a Short Sale?

A short sale occurs when the sale price of a home is insufficient to pay off all outstanding liens and associated required closing costs. If the buyer is unwilling to increase the purchase price and the seller is unwilling or unable to advance the additional funds to make up the difference, then the sale will not usually proceed to closing without special arrangements. In this instance, the seller may ask all or some of the lien holders to release their lien for less than the full amount owed.

Justifiable reasons a seller would participate in a Short Sale.

1. Verifiable long term (3 months or more) financial hardship.
2. The seller has no assets such as savings, 401k, stocks, bonds, retirements accounts, etc..
3. Ineligibility to participate in a Loan Modification or Workout.

Justifiable reasons a bank would participate in a Short Sale.

1. Less expensive than the legal process of foreclosure.
2. Asset protection, homeowner agress to be responsible for the property maintenance and repair until closing.
3. The bank can expect to get a price closer to market vs. what they can get at auction, if anything.

Benefits of a Short Sale.

1. Retain some dignity in knowing that you sold your home.

2. You won't suffer the social stigma of the "F" word: foreclosure.

3. No mortgage payments to make, unless you choose to make them.

4. You can meet the new owners.

5. You will be eligible, under Fannie Mae guidelines, to buy another home in 2 years instead of 5 years.

6. If your credit report does not reflect a 60-day+ late pay, under Fannie Mae guidelines, you will be eligible to buy another home immediately.

Drawbacks to a Short Sale

1. Waiting for the bank to respond to an offer is frustrating.

2. The bank will want to examine personal records such as tax returns, bank accounts, assets and liabilities, in addition to asking for a hardship letter from you.

3. Accommodating buyers will mean keeping your home in spotless condition for weeks or months until an offer is received and putting up with traffic through your home.

4. There is no assurance the bank will accept a short sale offer.

5. The derogatory credit will remain on your credit report for 7 years.

Note[edit] Lien holders may determine that it is in their best interest to cooperate to facilitate the pending sale and to accept a reduced payment rather than risk receiving a smaller payment, or nothing at all, should there be a foreclosure action or bankruptcy action. Ordinarily, the more junior the lien position, the weaker the lien holder’s negotiating position. Approval of a short sale release of lien need not include a release of liability for the associated debt, though the borrower/seller may seek to have a full release included as part of the deal.