Understanding Short Sales

I have been completing Short Sales for over 5 years now, and have completed the SFR (Short Sale & Foreclosure Resource Certification) class. I can tell you that it NEVER gets easier, but can be less stressful, if you know what you’re doing.

When a homeowner is in financial trouble, there is always light at the end of their tunnel. Many times a homeowner needs to sell quickly after purchase, and hasn’t had enough time to build equity, or has taken out a 2nd mortgage and owes more than the property is worth. In some areas of the country there has been a decline in home values which has also caused financial problems. I am seeing so many financial misfortunes with my Sellers... and it is important to know how to help them out of their crisis.

If the Seller can’t make their mortgage payments, there are a couple options for them to get out of the downward spiral.

If they want to stay in the home:
They may be able to do a mortgage workout to lower their payments….

If they know there is no way they can stay regardless (loss of job, divorce, illness, etc.):
Instead of giving the house back to the bank or going into Foreclosure,
I talk to them about doing a Short Sale.


A Short Sale is defined as “a sale of Real Estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the Short Sale process, because it allows them to avoid Foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.”

What do the banks need from the Realtors and their Sellers?
- Most banks prefer that the home is not abandoned, and in most cases, to qualify means they are at least 30 days past due on the mortgage (I am NOT recommending to skip house payments!)
- The homeowners’ financial worksheet, showing income vs. debts and monthly obligations
- Current Tax returns
- Current paystubs
- A hardship letter, explaining why they can no longer make their payments (and an apology is always good)

If the bank approves a Short Sale this could make a big difference on their credit score, as it will be lowered… but not NEAR as much as a Foreclosure. In most cases, the lender will pay the Realtor fees and the closing costs, and the homeowner cannot receive any money from the sale.

Who is a good candidate for purchasing a Short Sale property?
For a Buyer looking to purchase a Short Sale property, there are two things they must possess: plenty of time and patience! The average turnaround time once you submit an offer on a Short Sale is 90 days! That is 90 days to hear ANY kind of response (your offer may or may not be accepted). Most Buyers don’t want to, or simply can’t wait that long. I had one sale that took 6 months to complete and close. If a Buyer is considering making an offer on a Short Sale, they will have to be pre-approved and cannot make a contingent offer.

In most cases, the Buyer must purchase the home in “AS IS” condition. This doesn’t mean they can’t inspect the home and walk away if there are too many problems… but the Seller doesn’t have money for repairs and the lender won’t make any. If they have plenty of time and are willing to wait, they have the opportunity of getting a great deal!

For Realtors: there is a plethora of paperwork that must be submitted, followed by tons follow up calls to check the status of the sale. It is important to keep a log of all your calls and emails, as you may (let’s be honest, you WILL) be told conflicting things with every phone call, regarding what is needed, and the time to except things to happen. If you don’t have a lot of patience and determination, this may not be a place you want to go. If you are committed, it can be a WIN-WIN for the Buyers and Sellers.