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Try to Make a Short Sale

In a short sale, you negotiate with your bank for them to get back less money than they loaned to you for the house. A bank might be open to a short sale if they think any loss from it will be less than what they will lose in the foreclosure process.

Lenders also hate foreclosures. It costs money and time to foreclose on a property. When you inform them that you have a buyer willing to purchase the house, there’s a good chance they will be willing to work with you to close the sale.

A short sale is a type of loss mitigation that can help you avoid foreclosure. Here, your home is sold for less than what you owe on your mortgage. (CFPB)

To qualify for a short sale, you should demonstrate most of the following requirements:

  • You’re in financial distress – Whether this is because you lost your job, racked up medical bills, or inherited the home and can’t afford to maintain it, you’ll have an easier time qualifying if you can prove there’s a reason for your financial distress.
  • Your home's market value has fallen – You need to prove the house is now worth less than when it was bought. In other words, you need to be able to prove your house has depreciated since you bought it.
  • You’re underwater - When you own a house and owe more than the home is worth, the property is considered underwater.  
  • The mortgage is close to defaulting –If you have defaulted on mortgage payments, this is a clear sign you’re in financial distress.
  • You have no assets – Your lender will want copies of your tax returns to determine that you don’t own any assets. If you have assets, the lender is unlikely to approve the short sale. If the lender does, you may be asked to pay the difference between what you owe and what you got after the sale.

How A Short Sale Works

At first, a short sale resembles the normal process of selling your home using a realtor.

However, since the bank has to approve a short sale, (FTC) few things need to happen before the process can occur.

  • Short sales often begin with you (the homeowner) listing your home for sale and indicating it’s a short sale.
  • To prevent any possible fraud, most lenders will ask you to use a real estate agent to sell your home. Your lender will want to ensure they get the best price for your home and don’t lose any more money than necessary.
  • Your agent will advertise your home in a bid to find the best buyer who will buy your home quickly, keeping you from foreclosure.
  • Once you sign a contract with a buyer, your agent will initiate the long process of negotiating and convincing your lender of the need to make a short sale. Depending upon your lender, this process can take 2-6 months.
  • Your agent will help you assemble a short sale information packet during the negotiation (more on this later). They will use this to convince your lender why a short sale is necessary. (Chase) Your agent will also be working to help you receive relocation funds to help you move.
  • After reviewing your short sale packet, the bank may request additional documentation from you. They may also counter the price in your purchase contract. This is normal.
  • Your buyer can accept, counter or reject the bank's offer.

Pros of A Short Sale

  • Avoid the negative impact of foreclosure. As you’re probably aware, a foreclosure can cause your credit score to drop by 85 to 160 points and stay on your credit report for 7 years. Even after the 7 years have elapsed, you’ll be asked if you have ever been foreclosed when making home loan applications. If you’re lucky to secure a home loan, it may cost you an additional 1-2 percent in your annual interest rate.
  • It lets you stay in control of your moving date. When your home goes into foreclosure, you have limited time to move. A short sale eliminates the fear and uncertainty that comes with foreclosure. You have full knowledge of when your house will be sold and when you need to move by.
  • Many banks and lenders offer relocation assistance with a short sale. (DRE California)You can receive a few thousand dollars in cash back upon selling your home. You may be wondering why a bank would do this. Well, because it’s expensive for a bank to foreclose. It’s also much easier for them to agree to sell your house at a loss than to go through the legal maze of foreclosure.
  • Ability to buy another home sooner. If you go the foreclosure route, you’ll have to wait 7 years before you can qualify for another mortgage. By making a short sale, you can qualify for a loan to purchase another home within 2 years. Some lenders even let you purchase a new home while your previous home is being sold as a short sale!

Cons of A Short Sale

  • Unlike a traditional home sale transaction, the lender controls much of the short sale process. However, this is understandable because it’s the lender that will take a loss on the sale.
  • There could also be tax consequences associated with a short sale. While the bank might agree to cancel the remaining balance on your mortgage, you might owe taxes on the canceled mortgage debt.
  • Not all mortgage lenders will agree to pay off the balance of your mortgage. (Short Sale Seller Advisory) That means you have to ensure a solid commitment between you and your bank before making a deal.

Who Is This Option Good/Not Good For?

When you get behind in your mortgage payments and want to pay, but you just don’t have the money, a short sale may be a great option to explore.

Short selling is not for you if you’re unprepared for the lengthy negotiation process with the bank.

Your Short Sale Information Packet

As we mentioned earlier, your short sale packet is what your agent will use to convince your lender why you need to make a short sale.  

While your agent will help you with this, you will be the one to ultimately put this packet together yourself.

Some of the items to include in a short sale packet include:

  • Financial statements – Everyone who has signed for your home loan will need to provide your lender with copies of their financial statement. This can include copies of the previous 2 years' tax returns and a signed IRS 4506T permitting your lender to get copies of your tax records from the IRS.  You’ll also need the most recent 3 months’ pay stubs and copies of your previous 3 months' bank statements. You can also include any award letters like child support or alimony payments.
  • A hardship letter – This is a letter from you explaining why you want the lender to accept a short sale. It could be that you have a disability that causes you to be underemployed. Maybe your spouse has died, and you’re having trouble maintaining the mortgage. Or maybe you’ve lost your job and need to relocate to another state for another job.
  • Lender-specific forms - Every lender will have their own bank-specific forms. Your real estate agent will be able to obtain these from the bank’s short sale negotiator for you to complete.
  • Signed purchase contract - Most lenders will not entertain a short sale negotiation till you have a signed purchase contract. Upon receipt of this document, they’ll perform an appraisal of your home to determine what it’s worth and if a short sale is needed.

DIY Vs. Using an Experienced Short Sale Agent

You may be tempted to navigate the short sale process alone to reduce costs.

However, it’s vital that you seek the services of a real estate agent experienced in short-sale negotiations.

An experienced short sale agent will get your house placed on the Multiple Listing Service (MLS) and maintain communication with your bank ensuring your home doesn’t go to auction.

Works Cited

"CFPB." 25 9 2017. What is a short sale? <>.

"Chase." n.d. Short Sale Information Packet. 13 11 2022. <>.

"DRE California." 4 2012. Cash for keys. <>.

"FTC." June 2021. Trouble Paying Your Mortgage or Facing Foreclosure? <>.

"Short Sale Seller Advisory." 12 10 2010. Washington Department of Licensing. <>.

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