How to do a Short Sale

Posted at 11:10 AM, Nov. 7, 2008

WHAT IS A SHORT SALE?

A short sale is when a lender agrees to accept less from a homeowner than the amount that is owed on the mortgage.  The property may have more than one loan, in which case both lenders must agree to a short sale.

HOW DO I DETERMINE THE LIST PRICE?

The best way to determine the list price is to enlist the help of an experienced Realtor® who can prepare a Comparative Market Analysys. This analysis, or CMA, will include comparable properties that have recently sold, are currently on the market, or have not sold because the price was too high for the market.   The list price may be less than the underlying loans against the property, and it should be listed at a price that will attract buyers.   An experienced real estate agent will be able to tell you what homes like yours have been selling for, and what price will attract the most buyers.

HOW DO YOU GET YOUR LENDER TO AGREE TO A SHORT SALE?

Homeowners who are considering a short sale need to provide their lenders with a hardship letter explaining why the seller cannot afford to continue to stay in the home.  They will also need to provide the lender with bank statements, tax returns, profit and loss statement, list of assets, list of debts, etc. 

The lender will also require that you have your home listed through your local Multiple Listing Service.  They will not allow you to try to sell your home by owner.  They want the property to be exposed to the greatest number of buyers, which includes the MLS.  Some lenders won't agree to a short sale until there is an accepted offer on the property. 

HOW LONG DOES THIS PROCESS TAKE?

Short sales, unfortunately, can take months to complete.  From the time the property is listed to getting an offer, to getting the offer accepted by the lender can take from 2 to 6 months.  It is dependent on a number of details; one of the major reasons that short sales take so long is that the Realtors® involved are not experienced in transacting short sales and haven't taken care of the necessary paperwork.  Another reason is that there are so many short sales taking place that the lenders can't keep up with the demand.  We have heard of offers that were submitted to the lenders becoming "lost" and the agents having to re-submit their offers and start over.  

WHAT IF THE LENDER REJECTS THE SHORT SALE? 

If the lender rejects the short sale, there are a few alternatives the homeowner can take.  They can find out through their Realtor® why the lender rejected the short sale and re-submit the paperwork to the lenders specifications, they can choose foreclosure, or they can request a deed in lieu of foreclosure from the lender.  These are issues that the homeowner can discuss with their real estate agent. 

WHAT HAPPENS TO MY CREDIT WITH A SHORT SALE?

A homeowner in default is technically "in collection".  These events are reported to all three bureaus as "Score Factor Code #22".  The real difference between short sale and foreclosure on the homeowners credit is that the homeowner who has sold their home through a short sale is eligible to purchase another home in two years as opposed to 5 years for a foreclosure.   Both foreclosure and short sale will stay on the homeowners credit report for 10 years.

If you would like additional information on short sales, or if you know of someone who could use the counsel of experienced real estate agents, please call of email us.